UK Approves Three Chinese Banks to Sell Non Chinese Debt Denominated in Yuan

China’s bid to turn its currency into a global heavyweight got a boost Thursday with news that Britain will become the first Western nation to borrow money in yuan.

The U.K. government has appointed three banks — Bank of China (BACHF), HSBC (HSBC) and Standard Chartered (SCBFF) — to sell the first non-Chinese sovereign bond in the currency.

Proceeds from the sale will be added to the U.K.’s official foreign currency reserves, worth just over $100 billion. Borrowing to finance government spending is carried out exclusively in British pounds.

Most countries hold their reserves in U.S. dollars or euros. The U.K. is no exception, although it does have smaller amounts of Japanese yen and Canadian dollars.

Investors will be given more details about the U.K. bond on Monday.

The first sale is likely to be relatively small, raising perhaps the equivalent of just $300 million. But if other countries follow suit, the yuan will gain new stature in global currency markets.

Beijing has kept tight control of the yuan in the past, limiting money flows in and out of the country and holding down the exchange rate as a way to boost manufacturing and exports.

via CNN

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza