Bundesbank, PBOC in Pact to Turn Frankfurt Into Renminbi Hub

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.”

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.”

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.

Full article: Bundesbank, PBOC in Pact to Turn Frankfurt Into Renminbi Hub (Bloomberg Businessweek)

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