The new generation of leaders, who took the reins at the end of 2012, have made it clear that they want to reform China’s financial system, and as part of this want to make it easier for China to invest abroad and for China to receive foreign investment.
“This announcement is symbolic of their new intentions. China’s government is making it clear that it’s open for business,” says Mr Derrick.
Enabling direct foreign-exchange market deals between the renminbi and the British pound should increase bilateral trade.
This says Mr Derrick will allow Chinese markets to become more balanced, potentially ironing out local bubbles which exist in parts of China’s property market.
Beng-Hong Lee, head of markets, China for Deutsche Bank, says being able to directly trade sterling and renminbi will improve transparency, and “help lay the foundation for the use of the renminbi as a new global currency”.
And having a global currency will make it easier for China to both export and import, with more countries willing to accept renminbi-denominated deals.
Mr Derrick suggests a further underlying reason is to remove the exchange risk with the US dollar, saying China could be concerned that the Federal Reserve’s printing of money to stimulate growth could devalue the dollar.
“It wants people in China to feel comfortable their currency won’t be devalued,” he says.
