China's increasing financial power is leading to the rise of the renminbi as an international currency

The City of London has received backing from the Chinese government to become one of the world's major offshore RMB centers.

The People's Bank of China has recently agreed a currency swap arrangement with the Bank of England to make a sufficient volume of the Chinese currency available for trade.

The move follows a 390 percent increase in RMB trade services and a 20-fold increase in RMB letters of credit, according to a recent report by the City of London.

Mark Boleat, chairman of the policy and resources committee of the City of London, says London would become the most important offshore RMB center in either Europe or the United states.

"I don't see anywhere in the Western world becoming anywhere near the size of London.

"Singapore clearly has got a significant market as you would expect, because the many banks there have dealings with China."

Boleat, who is chair of the City of London RMB Initiative, which has involved major banks including HSBC, Bank of China and Citibank as well as HM Treasury and the Bank of England, said the recent swap agreement will provide a boost to RMB business.

"The swap is giving official recognition that there will always be liquidity in the market and that there will be a big market," he says.

John McCormick, Asia Pacific chief executive officer of markets and international banking at Royal Bank of Scotland, believes further internationalization moves by Beijing will mean the RMB will become a major global currency by 2015.

"The financial crises in the US and Europe mean the world needs a new, more stable global reserve currency, and trade in the RMB is growing rapidly," he argues.

Boleat says the offshore RMB center has emerged rather than had any official starting date.

"I think the Chinese believe that developing a market requires an opening date with flags waving and bands playing but of course markets aren't like that.

"The development of the offshore RMB market is about getting more activity."

He believes the facilities of the offshore center would be used mainly by those wanting to invest in RMB-denominated assets and UK medium-sized businesses wanting to trade with China.

"The main thing is trade. The big British companies know how to deal with this already but the medium-sized companies going to China for the first time are likely to get a better price if they can invoice in renminbi rather than dollars."