beyondbrics

photo: Bloomberg

When George Osborne, the UK chancellor, reached a deal this week aimed at making the City of London an offshore trading centre for the renminbi, it was met with a flurry of headlines – and a sobering dose of scepticism. After all, according to Swift, the money transfer cooperative, just 0.29 per cent of global payments last year were conducted in RMB. As the FT argued, a bigger role for the Chinese currency – and therefore for the City – depended on matters far beyond the chancellor’s control.

But other numbers from Swift suggest Osborne’s job is already half done.

Starting, of course, from a very small base, London put in what Swift calls a “stellar performance” as an offshore RMB centre (ie outside China and Hong Kong) during 2011. This from a note it published on Wednesday:

In RMB payments, Singapore started off strong early 2011 but lost ground and its share declined from 52.9% in Q1 to 30.6% in Q4. The United Kingdom on the other hand had the strongest growth in RMB payments and saw its share increase from 22.1% in Q1 to 30.0% in Q4. In RMB FX transactions, the United Kingdom is already the biggest player (other than China and Hong Kong) with a share of 46.4%. Building on these two facts, the United Kingdom is set to become the next RMB offshore trading centre in 2012 after Hong Kong.

These two charts from Swift show how London has been leaving its competitors in the dust:

(click to enlarge)

With the RMB making up such a small proportion of global transactions, you may ask, so what? Well, at this stage in the game, positioning is everything. And while the RMB’s role as a global currency has a long way to go, it is already growing – and much more quickly than its peers. This from Swift:

The RMB grew at a compound monthly rate of 14.8 per cent versus an average 0.7 per cent  for other currencies. This propelled the RMB as payments currency from position #30 in January to #17 in December 2011. None of the other BRIC countries did better: the Russian Rouble (#13) grew by 7.4 pe cent, the Indian Rupee (#51) by 4.1 per cent and the Brazilian Real (#60) by 2.3 per cent.

Here is Swift’s other chart, showing the evolution of the RMB’s role (note that “other currencies” are on a different scale altogether):

(click to enlarge)

Now, let’s not get carried away. As the FT pointed out this week (in an editorial linked to above):

A reserve renminbi would have to be fully convertible, on the capital as well as the current account. But this would imply opening up China to the whims of global capital – precisely what it has been protecting itself against (as its huge foreign currency reserves plainly attest).

There is little chance of a convertible RMB any time soon. But as China takes slow and steady steps along that path, London will be well positioned to ease its way. Job done.

Related reading:
Osborne seizes chance to grab China’s coat tails, FT
Renminbi: not so fast, beyondbrics
Traders prepare for falling renminbi, beyondbrics
Renminbi: ‘Redback’ puts the brakes on, FT