London to become Chinese offshore banking center

London to become Chinese offshore banking center

Britain has relaxed stringent rules for Chinese banks willing to set up in London. Beijing in turn opened up its markets to British-based investors, marking the latest move to establish the yuan as one of the world’s key currencies.


“A great nation like China should have a global currency,”   said UK Chancellor of the Exchequer, George Osborne, during his   official five day visit to China. And the UK is gladly willing to   contribute “through the international center of finance:   London”.

Under the agreed pilot program, China sanctioned London-based   investors to buy up to 80 billion yuan ($13.1 billion) of stocks,   bonds and money market instruments directly, avoiding Hong Kong   transactions, Reuters reports.

Meanwhile, Britain will let Chinese banks set up wholesale   branches in London, easing regulations the country had imposed   after the financial crisis broke out. Since 2008, Britain has   insisted that most foreign lenders should set up their UK   operations as “subsidiaries” rather than branches, which provides   greater protection for depositors and taxpayers. Less regulation   will be welcomed by Chinese lenders who have always complained   the rules made it hard to operate in Britain, prompting them to   move much of their business to Luxembourg.

Plan B: Central banks getting ready for financial Armageddon

Plan B: Central banks getting ready for financial Armageddon

If the US debt-ceiling debate goes past the eleventh hour, and the default of the world’s largest economy becomes a reality, leading central banks around the world are gearing up to minimize losses and keep the world economy functioning.


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  If US lawmakers don’t reach a budget consensus and raise the debt   ceiling by Thursday October 17, the US will become the first   Western power to default since Nazi Germany in 1933, and will   send markets into uncharted territory. 

The rest of the world is bracing itself for what would happen if   the bill is rejected, and the US inches closer to defaulting on   its debts, which are largely foreign- held in the form of US   Treasury Bonds.

Central banks have begun preparing for the worst-case scenario if   US does fault, which would result in a serious devaluation of   Treasury bonds, delayed payments, and a more large-scale version   of the current government shutdown.

“Because in the past it’s always been sorted out is absolutely   not a reason to fail to do the contingency planning,” Jon   Cunliffe, who will become the Bank of England’s deputy governor   for financial stability in November, told UK lawmakers.

“I would expect the Bank of England to be planning for it [US   default]. I’d expect private-sector actors to be doing that, and   in other countries as well,” said Cunliffe, who acknowledged   a default as “the main risk to the [global] financial   system”.

The European Central Bank and the People’s Bank of China (PBC)   have struck a deal that moves both banks farther from the dollar   orbit. The two banks agreed to ‘swap’ $56 billion worth of yuan   for $60.8 billion worth of euros.

Many central banks have reserves in the form of Sovereign Wealth   Funds, which are also at risk if the US defaults, as many of the   assets are held in dollars. These investment vehicles could be   crippled by a default. China’s is estimated at more than $1.3   trillion – the world’s largest.