Morgan Stanley and Citigroup Inc are among those vying to be the designated U.S. bank clearing yuan trades in the United States alongside Bank of China Ltd (BoC), China’s fourth-biggest bank by assets, a senior BoC executive said on Wednesday.
Appointing banks to clear yuan trades is part of China’s drive to encourage worldwide use of the currency, also known as the renminbi, which it hopes would some day supplement or rival the dollar as a global reserve currency.
Unlike other countries where China is also trying to expand the yuan’s reach, the United States will have two banks to clear renminbi trades, Xu Chen, president and chief executive officer of BoC , said in New York.
This is in part because the advocacy group led by former New York mayor Michael Bloomberg that has championed wider usage of the yuan in the United States had asked China to allow a U.S. bank to clear renminbi trades in the country, Chen said.
China usually designates just one Chinese bank to clear all yuan trades in each country outside its borders.
Chen said Morgan Stanley and Citi are both looking into submitting their respective bids to the Chinese central bank, the People’s Bank of China.
“Based on our understanding, the (advocacy) group suggested to the People’s Bank of China (PBOC) that it adopts the approach of appointing one Chinese bank and one U.S. bank,” he said.
The sheer volume of trade should help catapult the United States into the second-largest offshore yuan clearing centre after Hong Kong in three to five years, Chen said.
BoC was only appointed last month as the designated bank to clear yuan transactions in United States, which can currently be cleared through Hong Kong, London or Singapore, the major renminbi clearing centers outside China.
To that end, BoC plans to expand its yuan trading desk in New York and sell renminbi hedging services in the city before year-end, Chen said.Morgan Stanley and Citi declined to comment. The PBOC was not immediately available for comment.
Despite strong trade ties between China and the United States – the world’s two largest economies – Beijing has been slow in making inroads to set up a yuan market in the United States compared with other countries.
Chinese and U.S. officials have said this is partly due to a desire by some within the U.S. government to protect the dollar’s status as the world’s pre-eminent currency.
The United States was China’s largest bilateral trade partner last year, with $558 billion worth of goods and services exchanged between the two countries, Chinese data showed.
The advocacy group for the yuan, which counts ex-Securities and Exchange Commission chair Mary Schapiro and former U.S. Treasury secretaries Timothy Geithner and Henry Paulson as its vice chair and co-chairs, includes JPMorgan Chase & Co, Wells Fargo & Co and Bank of America Corp as its members.
The yuan was the fifth-most-active currency for global payments in July, accounting for 1.9 percent of the market share, according to global transaction service provider SWIFT.