Competition fierce to be first non-Asian yuan settlement service

Britain and China will sign an agreement on Monday to work on setting up the first clearing and settlement service for renminbi trading outside Asia, Britain's Treasury said on Wednesday in a statement.

Financial sector experts in London have welcomed the news, hailing it as a milestone in boosting London's advantage in the contest to become the Western hub for offshore renminbi transactions.

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Lake said having an official clearing bank will help London's financial market to build up renminbi transaction volumes, which will help with the internationalization of the Chinese currency.

"We expect the currency to be fully convertible in the next two to three years under the capital account and subject to the success of China's overall reform plans," Lake said.

An official clearing service facilitates the efficient clearing of offshore renminbi transactions, achieved through direct cooperation between a commercial bank in London appointed for this purpose and the People's Bank of China.

Having an official clearing bank also allows more liquidity for the offshore renminbi center that hosts the bank. Moreover, it bears symbolic significance for the offshore renminbi center in that it has recognition from the Chinese government.

The announcement came amid fierce competition between different European financial centers, including Paris, Frankfurt and Luxembourg, to become the top destination for offshore renminbi transactions.

For example, Luxembourg Minister of Finance Pierre Gramegna said in February that he will put forward the request for Luxembourg to have an official clearing bank when he visits China in June.