Chinese Yuan
Chinese YuanReuters

Britain and China are poised to sign an agreement next week to promote London as the first yuan trading hub outside Asia.

The UK Finance Ministry said the Bank of England (BoE) and People's Bank of China (PBoC) will sign a yuan clearing deal on 31 March to enable the British capital to offer yuan trade business in Europe.

The agreement defines the cooperation between the central banks over the running of a yuan clearing and settlement centre in London.

Chancellor George Osborne has been focusing on the world's second largest economy and has been keen to open a yuan trading hub in the capital city as the currency poses stiff competition to the US dollar as a global medium of exchange.

"Connecting Britain to the fastest growing parts of the world is central to our economic plan," Osborne said in a statement.

"Other Western countries will follow, but London now has the critical mass of infrastructure, helping to put Britain at the front of the global race."

Prime Minister David Cameron and Chinese President Xi Jinping discussed cooperation between the two central banks at a meeting on the margins of a nuclear security summit in the Netherlands on 25 March, according to the statement.

Britain had agreed on a renminbi swap line with the People's Bank of China last year, the first country to do so from the G7 group.

A finance ministry source told Reuters an announcement on the appointment of clearing banks was not expected immediately. Bank of China and ICBC are leading contenders to be the clearing bank in London, according to the news agency's sources.

Despite being the world's largest trade centre for foreign exchange, London currently depends on Hong Kong's offshore yuan infrastructure to obtain yuan liquidity and clearing services. About 62% of yuan payments outside of China are taking place in London, according to the UK finance ministry.

The average daily turnover of yuan-denominated foreign exchange in London increased to $15.6bn in the first half of 2013, twice as much as a year earlier, Reuters reported citing the local authority for the City of London.