On 28 June 2014, the central bank of Luxembourg (Banque centrale du Luxembourg) (BCL) and the China's central bank, People's Bank of China (PBoC), signed a Memorandum of Understanding (MoU) on renminbi (RMB) clearing arrangements in Luxembourg.
"The MoU aims to establish a cooperation between the two institutions in terms of oversight, exchange of information and assessment pertaining to the RMB business in Luxembourg in view of a forthcoming designation, by the PBoC, of a renminbi clearing bank in Luxembourg," the BCL said.
The designated bank will be able to supply RMB liquidity in case of a shortage by directly accessing China's onshore currency market, which will benefit Chinese and Luxembourg "businesses and financial institutions in using the renminbi for cross-border transactions and in further promoting trade and investment".
Up to the first quarter of 2014, Luxembourg harbors around 79.4 billion RMB in deposits, a 24% increase than the last quarter of 2013. It currently hosts the European headquarters of China's three leading banks, namely Bank of China, China Construction Bank and Industrial and Commercial Bank of China. Mr. Pierre Gramegna, Minister of Finance of Luxembourg, announced on 1 July during his visit to China: "China Merchants Bank has decided to start the process of setting up in Luxembourg, thereby further confirming Luxembourg's role as the prime European hub for Chinese banks." On 3 July, he further announced that the Agricultural Bank of China is going to set up its EU headquarter in Luxembourg next month.
Luxembourg endeavors to play a more important role in the internationalisation of RMB which is evidenced from the signing of two other MoUs recently: an MoU between the Luxembourg Stock Exchange and Bank of China that involves the creation of a strategic partnership between these two companies on 19 June and an MoU between the Asset Management Association of China (AMAC) and Association of the Luxembourg Fund Industry (ALFI) on 30 June with the purpose of deepening the collaboration between the two associations. These MoUs are significant steps in Luxembourg's development of financial activities related to the internationalisation of the Chinese currency in a fast-growing offshore RMB market.
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