ICBC becomes renminbi clearing bank in Luxembourg

ICBC Luxembourg Branch has been appointed as a renminbi clearing bank in Luxembourg on Tuesday, marking an important milestone in the Grand Duchy's race to become a leading renminbi center in Europe.

The news follows the signing in June of a Memorandum of Understanding between the People's Bank of China and Luxembourg's Central Bank to set up a clearing bank in Luxembourg.

"It's fantastic news, and confirms the Chinese authority's recognition for Luxembourg's role as one of the major renminbi hubs in Europe," said. Nicolas Mackel, chief executive of Luxembourg for Finance, an agency that works for the development of the financial sector in Luxembourg.

"A clearing bank is the guarantee for renminbi liquidity. Any investor who buys renminbi denominated bond, or any trade that needs settlement, can have the guarantee for liquidity in renminbi, so the announcement is not purely symbolic," Mackel said.

An official clearing bank facilitates the efficient clearing of offshore renminbi transactions, achieved through the appointed bank's direct cooperation with the People's Bank of China, China's central bank.

As a demonstration of different European financial centers' competition to become renminbi centers, Bank of China has just been appointed the renminbi clearing bank in Paris. Renminbi clearing banks have also been appointed in London and Frankfurt earlier this year.

Mackel said he believes there is more cooperation between different European financial centers than competition, because these centers all specialize in different financial products or expertise, and together they can build up renminbi activities in Europe.

Mackel said that Luxembourg's concentration of Chinese banks have lead to a large accumulation of renminbi deposits and loans. The large number of renminbi bonds listed on its stock exchange and the great volume of renminbi assets under management in Luxembourg all give Luxembourg an advantage in being a renminbi hub.

Luxembourg has the largest pool of renminbi in the Eurozone with 79.4 billion yuan in deposits and 73.0 billion yuan in loans until the end of the first quarter of 2014. It is also the largest renminbi securities settlement centre and the leading listing place for renminbi denominated bonds in Europe.

The funds investing in renminbi denominated assets domiciled in Luxembourg have managed assets over 261.8 billion yuan. Luxembourg is home to Clearstream, the principal European supplier of post-trading services, through which renminbi bonds with a volume of currently 408 billion yuan in the first quarter of 2014 are cleared and financed.

ICBC first had a presence in Luxembourg in 1998 as a representative office, which was quickly upgraded to a branch in 1999. In 2006, ICBC established a subsidiary in Luxembourg in order to prepare for the bank's expansion to other European countries using the EU's Single Passport policy.

"Luxembourg is an important financial center in Europe, with efficient regulations, obvious geographical advantage and a government that readily welcomes foreign investment into the country," says Gao Ming, chairwoman of ICBC Europe said to China Daily in a previous interview.