The memorandum of understanding is expected to be signed on 31 March, sketching out a collaboration between the Bank of England and the People’s Bank of China.
Earlier this month, the International Finance Corporation in London became the first international institution to issue a benchmark bond when it unveiled the RMB bond.
“Today’s agreement, the first outside Asia on clearing and settlement arrangements, is another major step forward. It is great news and I look forward to the appointment of a clearing bank soon,” George Osborne said in a statement by the UK Treasury.
A boost for banks
The move is indicative of the policy reform hinted at by China’s new administration, which indicated it would liberalise its capital account over the medium-term. The latest agreement will reduce the risk for investors dealing with the Chinese currency through overseas payments.
“It’s a very positive move, but not wholly unexpected,” Ben Surtees, manager of the Jupiter Asia Fund, said.
The banking sector in China is generally unloved, due to the structure of the economy and transparency issues which make it difficult to determine the quality of the bank books.
But this could be changing: yesterday, the Agricultural Bank of China posted upbeat results which were in line with, if not above, market expectations.
“There’s a lot to like in the banking sector,” according to Surteen.
“In the near term banks have started to rally. Most investors are underweight in this sector due to the nature of the banking system. But we’ve seen this sector outperform the past 2-3 days with results largely better than expected.”
