-Xia Bin: Swap Accord Very Important Signal For Market Confidence

By David Thomas

LONDON (MNI) – a senior adviser to the Chinese government Wednesday night
urged the Bank of England to discuss a currency swap agreement with the People’s
Bank of China in order to help promote the growing offshore renmimbi FX market.

“I think the Bank of England should have more discussions with the Chinese
government regarding a currency swap agreement,” Xia Bin, counsellor of the PRC
State Council the told a City of London Corporation.

The comments follow pressure from participants in London’s fast-growing
offshore renmimbi market for the BOE to do more to help promote trading and in
particular sign a swap deal with the PBOC.

BOE officials have proved resistant so far, insisting swap accords are
strictly a crisis tool.

But Xia Bin tried to persuade the BOE to get involved, saying a swap deal
could start off in a very limited way.

“We can start with a very small amount and a very short period of time,”
Xia Bin said.

Just the fact of signing a swap deal would be crucial for confidence
building in the new market, Xia Bin said.

“It is a very important signal for market confidence,” Xia Bin said.

Xia Bin said London had in many ways greater advantages than Hong Kong to
become a centre of the offshore renmimbi trade, given its domination of the
global foreign exchange as well as reinsurance market.

London foreign exchange market participants are increasingly worried that
European centres could start to challenge London’s domination of this embryonic
market, especially given the rising volumes of euro zone-China trade in
manufactured goods.

Such concerns will no doubt have been sharpened by comments made by Bank of
France Gov. Christian Noyer during an Asian tour earlier this week. Noyer said
there was no good reason for London’s pre-eminent share of euro foreign exchange
trading given the UK’s decision to stay out of the single currency bloc.

City of London Corporation Policy and Resources Committee Chairman Mark
Boleat said his understanding of the BOE’s position was that it was ready to
agree a swap agreement if necessary, and the central bank is not opposed per se
to a swap deal with China.

Katherine Tsang, chair of Greater China, Standard Chartered, said, “I can
understand why London is still the number one financial centre in the world”.

“It’s not easy to compete with the City of London,” she added.

But she said, “From the point of view of the markets it’s nice to know if
my country has a lifeline, something prepared for the bad times.”

She said London now needs to focus on growing renmimbi liquidity in the
months and years ahead if it wanted to build a “wider product suite”, including
issuance of offshore RMB or so-called “Dimsum” bonds.

“Unfortunately, this brings us back to the issue of the swap line,” she
concluded.

–MNI London Bureau; tel: +44 207-862-7492; email: dthomas@mni-news.com

[TOPICS: M$B$$$,MI$$$$,M$$BE$,MN$FX$]