The financial center London is threatened by the Brexit a significant weakening. The euro in particular will lose importance in the „city“. However, one strategy for defending its position as a global trading hub is likely to be: cooperation with China, which in turn has global ambitions. This is shown by current figures.
London is the world’s number one in currency trading. This position could defend the „City“ despite the Brexit vote so far. Certainly, however, foreign currency trading, especially in relation to the euro, will mean that some trading volume will be transferred to the mainland. Several trading houses have already announced their partial or total withdrawal from London. But for London, the Chinese currency Yuan is a serious alternative in the long run. However, with politically sensitive implications.
The Bank of England this week released the exact figures on foreign exchange trading in London. These are the most recent available numbers, those of October. The data is always published three months later. For years London has been trying to become the most important yuan trading center in the West.
Yuan or Renminbi?
Strictly speaking, renminbi is the official name for the currency of the People’s Republic. In Yuan, it pays. Often the terms are used synonymously. It is similar with the British pound sterling, which also becomes the pound in everyday life.
London’s strategy „bears fruit“
Now for the first time more renminbi against the US dollar acted as euro to the pound. Specifically, a trade volume of $ 73 billion (yuan to dollars) compares to a volume of $ 66 billion (pounds sterling). London’s concerted efforts to become a hub for the Yuan trade are „bearing fruit,“ Curtis Pfeiffer of Pragma Securities told the Financial Times.
Plus 17 percent
The rise in yuan trading helped cushion a noticeable decline in pound trading, which is the victim of ongoing haggling around the UK’s exit from the EU.
By contrast, yuan trading rose 17 percent, moving up to seventh in the list of the most heavily traded currency transactions. 2.8 percent of the total trading volume was made up of yuan-dollar transactions. The share of euro-pound transactions was 2.5 percent. By far the most important is the dollar-euro trade with 27.9 percent share before the dollar-pound trade at 12.4 percent.
Pound-to-dollar trading declined 8 percent in October of last year compared to April of the previous year. The pound trade against the euro plummeted by seven percent. For comparison: In the world’s second most important currency trading center, New York, the trading volume in the two same months remained almost the same.
Problem with „special relationship“?
London’s interest in diversifying its own marketplace with the yuan trade has further intensified with Brexit. The campaign for China, however, already began years before – this could bring the London politically also in the dilemma. The British government wants to deepen its traditional „special relationship“, the close relations with Washington, precisely after the EU’s exit.
Brexit supporters in London
debate
How is Brexit going?
So far, however, US President Donald Trump has been cruising China’s trade policy. Even the current round of negotiations in Washington should bring there no solution. On the contrary: With the dispute over the Chinese telecom giant Huawei and its international business and role in the 5G expansion, the conflict is coming to a head. All of this could put London in a difficult position.
From a Chinese point of view, the further spread of the yuan in international financial centers is of great political and economic importance. On the one hand, it underscores China’s aspirations to become a world power alongside the US and Russia. And the yuan as an international currency facilitates economic expansion and deals abroad.
Common front with EU
London could just jump to the side of the EU. Europe has been trying for years to strengthen the Chinese currency as a reserve currency at the expense of the US dollar. It facilitates trade with China’s increasingly important trading partner. And by the way, this is one of many small steps to emancipate politically something from the US. Not least due to European pressure, the yuan was added to the basket in 2016, from which the Special Drawing Rights (SDR) of the International Monetary Fund (IMF) are calculated.
These SDRs are a sort of IMORT retort currency – when governments apply for emergency loans from the Fund, they are listed as SDRs in the books. In addition to the yuan, the US dollar, the euro, the British pound and the Japanese yen are proportionally represented in the SDR basket. A SZR currently corresponds to a book value of just over € 1.2.
