Agreement comes as bilateral trade expected to reach $80b this year

The UK government's issuing on Oct 14 of a three-year, yuan-denominated bond worth $490 million - becoming the first sovereign to do so - strengthens London's position as the preferred Western hub for offshore renminbi trading, and marks a milestone for the Chinese currency's internationalization process.

Competition among the offshore renminbi centers - Singapore, London, Paris, Frankfurt and Luxembourg so far - has intensified as Beijing steps up efforts to promote the wider use of its currency.

Britain has become the world's first non-Chinese issuer of sovereign renminbi debt, and the issue will be used to finance British reserves, it said. The country currently holds reserves in US and Canadian dollars, euros and the yen.

The new renminbi bond is a stand-alone issuance that will contribute liquidity to the small but fast-growing offshore yuan market and attract other players in both the private and official sectors.

Since the launch of the offshore renminbi market in 2011, Britain has done its utmost to keep London at the forefront of the global efforts to get the initiative off the ground.

The City of London is already the fastest-growing market in Europe for renminbi payments, more than doubling its volumes from July 2013 to July 2014.

In 2013, total renminbi foreign exchange trading in London averaged $25.3 billion per day, or a 50 percent increase on 2012. London is also the leading international center for trading renminbi outside the Chinese mainland and Hong Kong.

In achieving that status, it has achieved a number of significant firsts. For example, Britain and China signed their first currency swap agreement, worth the maximum value of 200 billion yuan ($33 billion), in June last year.

Both countries' central banks agreed to establish a reciprocal 3-year sterling/renminbi currency swap line.

Then in October last year London was also granted an 80 billion yuan quota under the Qualified Foreign Institutional Investor program, which opened the large interbank bond market to UK investors, becoming the first country outside Asia to gain the status.

British Chancellor of the Exchequer George Osborne said at the launch of the bond last month that the key to the UK's long-term economic plan was increasing its exports to fast-growing economies like China, and attracting more investment to the UK.

London to lure bigger share of floats	China Development Bank issues RMB bonds in London