Bloomberg News

Bundesbank, PBOC in Pact to Turn Frankfurt Into Renminbi Hub (1)

March 28, 2014

Renminbi

Chinese one-hundred yuan banknotes are arranged for a photograph in Hong Kong, China. Photographer: Brent Lewin/Bloomberg

Germany’s Bundesbank and the People’s Bank of China agreed to cooperate in the clearing and settling of payments in renminbi, paving the way for Frankfurt to corner a share of the offshore market.

The central banks signed a memorandum of understanding in Berlin today, when Chinese President Xi Jinping met German Chancellor Angela Merkel, the Frankfurt-based Bundesbank said in an e-mailed statement.

Germany’s financial capital prevailed over Paris and Luxembourg in a euro-area race to win trade in renminbi, which overtook the euro to become the second-most used currency in global trade finance in October, according to the Society for Worldwide Interbank Financial Telecommunication. The U.K. Treasury said on March 26 that the Bank of England would sign an initial agreement with the PBOC on March 31 to clear and settle yuan transactions in London.

“Frankfurt is one of Europe’s foremost financial centers and home to two central banks, making it a particularly suitable location,” said Joachim Nagel, a member of the Bundesbank’s executive board. “Renminbi clearing will strengthen the close economic and financial ties between Germany and the People’s Republic of China.”

China is loosening exchange-rate controls in an overhaul of its $9 trillion economy. The accord follows the establishment of a 350 billion-yuan ($56 billion) and 45 billion-euro ($62 billion) bilateral swap line between the PBOC and the ECB in October, bolstering access to trade finance in the euro area.

Clearing Bank

A clearing bank will be designated to clear and settle the trades, the Bundesbank said.

Industrial & Commercial Bank of China Ltd., Bank of China Ltd., Bank of Communications Co., Agricultural Bank of China Ltd. and China Construction Bank Corp. are Chinese banks with branches in Frankfurt.

“The establishment of renminbi clearing in Frankfurt is a major step forward for the export-oriented German Mittelstand,” said Wolfgang Kirsch, the chief executive officer of DZ Bank AG, referring to the thousands of small and medium-sized companies that form the backbone of Germany’s economy. “Institutional investors will also benefit from the improved access to renminbi trade.”

China was Germany’s third-biggest foreign trade partner last year, with 140 billion euros in turnover passing between the two countries, according to the Federal Statistics Office in Wiesbaden. China ranks fifth among importers of German goods and is the second-biggest exporter to Germany.

Closer Ties

Deutsche Boerse AG, which operates the Frankfurt Stock Exchange, also signed an agreement with Bank of China, expanding a partnership that will make it easier for Chinese issuers and Asian investors to access European capital markets, including stock listings.

In a sign of closer economic ties between the two countries, China plans to open a fourth consulate in Germany this weekend in Dusseldorf, according to the city’s local chamber of commerce. About 800 Chinese companies have bases in North Rhine-Westphalia, Germany’s industrial heartland. More than 300 of those are in Dusseldorf, where about 2,700 Chinese live, according to the city.

German companies including Siemens AG, the country’s biggest engineering company, and Volkswagen AG are embracing the renminbi internally as a third currency for cross-border trade settlements.

“The potential is vast,” said Stefan Harfich, the Siemens Financial Services manager, who steered the introduction of the yuan at the Munich-based company in October. “The introduction of the renminbi as an official company currency will therefore have a big impact on Siemens’s business in the coming years.”

Daimler AG, the Mercedes manufacturer that sold 235,644 autos in China last year, issued 500 million yuan of one-year notes in Asia’s largest economy on March 14, in the first so-called panda bond by an overseas non-financial company.

To contact the reporters on this story: Angela Cullen in Frankfurt at acullen8@bloomberg.net; Weixin Zha in Frankfurt at wzha2@bloomberg.net

To contact the editors responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net Mark Williams


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