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Bank of England 'could enter forex swap deal with China'

The Bank of England (BoE) could enter into a foreign exchange swap agreement with China in the near future, it has emerged.

Chris Salmon, executive director for banking services at the institution, has stated that the BoE is willing to become the first G7 central bank to sign up for such a deal with the world's second-largest economy as this would help in the creation of an offshore market for the yuan.

During a speech delivered yesterday (24 January) at the London Money Market Association Executive Committee meeting, Mr Salmon indicated that such a move would benefit the UK by keeping yuan trading out of London.

China is taking measures at present in order to liberalise its currency and while UK officials have previously resisted any prospect of striking a deal with the People's Bank of China, Mr Salmon has indicated this stance has now changed.

"The BoE would welcome the development of the offshore renminbi market just as it would any other legitimate market innovation," he noted.

By Tony Aynsley