The French capital eyes currency swap agreement with China

Paris is vying to become a major offshore yuan trading hub in the eurozone with a view to setting up a currency swap agreement with China, says the French central bank governor Christian Noyer.

"The Bank of France has been working on ways to develop a RMB liquidity safety net in the euro area with due consideration of a supporting currency swap agreement with the People's Bank of China," Noyer told China Daily in a written interview.

Noyer says the launch of such a facility will encourage use of the yuan in the eurozone as a trade settlement currency as well as an investment currency.

It will also boost market confidence in the Chinese currency by reassuring market participants that yuan liquidity will remain available, even in extreme situations, he says.

Paris has been accelerating the race with London to become a leading yuan trading center for Europe after the Bank of England said in March it had signed a three-year currency swap agreement with China that will allow the British central bank to supply 400 billion yuan ($64.5 billion; 49 billion euros) to British banks.

Yuan deposits in Paris amount to 10 billion yuan, making the French capital the second largest pool for the Chinese currency in Europe after London. Nearly 10 percent of Sino-French trade is settled in yuan, according to the French central bank.

"The current level of offshore deposits and liquidity in Paris provide a good basis to foster growth in RMB products and services in the eurozone. The availability of a liquidity safety net in RMB in the euro area will further foster such growth," Noyer says.

His comments come ahead of an expected visit by French President Francois Hollande to China next week.

French Foreign Minister Laurent Fabius, who paid a two-day visit to Beijing last week, called on President Xi Jinping and held talks with his Chinese counterpart Wang Yi to discuss preparations for Hollande's visit.

Some analysts say the yuan's internationalization, and financial cooperation between China and France, could be among the main topics to be addressed during Hollande's visit.

Noyer considers the yuan's internationalization initiated by China's top authorities to be the first step toward full convertibility. "Such an evolution will make the RMB one of the three major international currencies, together with the dollar and the euro," he says.

Noyer says Paris has been committed to strengthening its position in corporate bonds and short-term negotiable debt securities markets as well as the associated trading infrastructure, to promote wider use of the yuan.

French companies are among the most active European issuers of yuan-denominated bonds, which offers Paris an advantage to promote the yuan trading business, says Arnaud de Bresson, chief executive of Paris Europlace, a professional association that supports the French financial industry and promotes Paris as an international financial center.

In 2011 and 2012, the total value of offshore yuan-denominated bonds issued by French corporates was nearly 7 billion yuan, twice the value of bonds issued by their British counterparts, according to a report by Paris Europlace.

A survey by the association also showed that 50 percent of French companies have used yuan-denominated products and services.

"France's historic relationship with Africa, and its favorable geographical location, also makes Paris a natural hub for RMB trading in the Sino-African business flows that are traded through Paris," De Bresson says.

Chinese financial institutions in France have also been benefiting from the growing interest in yuan business in the French capital.

The Paris branch of Bank of China has seen its cross-border yuan settlement reach 170 billion yuan, the largest amount of all BOC branches outside the Chinese mainland except Hong Kong.

Yuan business now contributes almost half of the branch's total income, according to Phan Nhay, general manager of BOC's Paris branch.

De Bresson added: "The internationalization of the yuan is a key opportunity for market players and international corporates in France. It is an irreversible trend that the demand for yuan-denominated products will increase at a faster pace in coming years."

De Bresson says the main challenge for Paris to develop its yuan trading market is to widen the understanding and opportunities offered by internationalization of the currency, and full convertibility will help contribute to the process.

Qin Zhongwei in Beijing contributed to this story.

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(China Daily 04/19/2013 page19)