China‘s and Switzerland’s central banks have signed an agreement to make Zurich the newest hub for trading the renminbi currency (RMB).
Switzerland will receive a quota of RMB50 billion (CHF7 billion) to establish itself as a so-called RMB Qualified Foreign Institutional Investor, or RQFII, according to an announcement from the Swiss National Bank (SNB). Switzerland’s status as a “renminbi hub“ will give Swiss commercial traders the ability to make and clear direct trades with their Chinese counterparts in China.
The agreement suggests that a Chinese commercial bank may also establish itself in Switzerland in the coming months, since such a presence is necessary for renminbi clearing arrangements to take place.
The SNB called the agreement, which was reached on the sidelines of the World Economic Forum’s annual meeting in Davos, "a sign of fresh progress in bilateral financial cooperation between China and Switzerland“.
In July of last year, the SNB and the People’s Bank of China signed a preliminary renminbi swap agreement worth CHF21 billion. However, in the ensuing months, Luxembourg emerged as a competitor to Switzerland for RQFII status. According to analysts, Wednesday’s announcement clearly demonstrated Switzerland’s advantage over Luxembourg in this arena in the eyes of the Chinese and indicates a high level of trust between Switzerland and China.
Currently, around half a dozen countries, including Britain, Germany and France, hold RQFII status.
The only remaining hurdle to jump is persuading a Chinese commercial bank to set up operations in Switzerland. Bank of China was present for a short period but moved to Luxembourg after a rumoured disagreement with regulators.
A Chinese bank present in Switzerland is necessary to put into practice the clearing arrangement signed in Davos on Wednesday.