On Friday, the U.K. government announced plans to issue the world’s first non-Chinese sovereign bond denominated in the renminbi.
The landmark move leads the way in establishing the Chinese yuan, or renminbi, as an international reserve currency and could be the “writing on the wall” for the future of the U.S. dollar.
The British Chancellor of the Exchequer, George Osbourne, said in a press release, “I can now announce that the UK government intend to be the first national government outside of China to issue a bond in China’s currency. We issued bonds in U.S. dollar before, now we will be issuing a bond in RMB.”
Since the Bretton Woods Agreement in 1944, the U.S. dollar has been used as the world’s reserve currency, the most commonly used currency for international trade. With Britain offering the world’s first yuan-backed bond, it sends a clear signal about the UK’s level of confidence in the future of the dollar and their prediction for the future of China.
“As China becomes a bigger and bigger part of the world economy, their currency is going to be used around the world. We here in Britain understand that, and we want us to be the first country in the west to seize the opportunities that it will bring,” Osbourne continued.
In June, Britain became the first European nation to sign a new trade agreement with China that would allow the direct local exchange of the yuan for British pounds. It was the fifth nation overall to allow direct currency trade in Shanghai, with similar exchange deals made with Australia and New Zealand, Japan, and the U.S.
The Bank of England will oversee sales of the bonds, which will occur over the next few months. More than 60 percent of yuan sales outside of China currently occur in London, according to the U.K. Treasury and SWIFT, the Society for Worldwide Interbank Financial Telecommunication.