As a sign of China's financial muscle and London's forex prowess, the UK and China have inked a landmark deal around the expanding RMB market.

Britain and China have agreed to a series of steps that will cement London’s role as a global offshore hub for trading the Chinese currency, the renminbi, and also act as the spring board for the capital to become a centre for RMB investment into China.

The agreements will reinforce London’s role, in partnership with Hong Kong, HM Treasury said in a statement yesterday. Such a deal had been trailed in a number of media reports.

Such a move also comes at a time when the UK government has signalled that it wishes to make it easier for Chinese high net worth individuals to obtain visas; such a development highlights how countries are trying to tap the burgeoning wealth of the Asian giant at a time when many Western nations are still recovering from the 2008 financial crisis. The development also signals China's continuing push to make the RMB a global reserve currency in competition with the likes of the euro and dollar.

The latest agreement comes after two-days of talks between UK finance minister, George Osborne and his Chinese counterpart, vice-premier Ma Kai, as part of the Economic and Financial Dialogue (EFD) between Britain and China.

The fifth UK-China EFD was co-hosted by Osborne and Kai, and attended by senior officials from both countries.

"Both sides welcomed this as an important step that cements London’s major role as one of the most important global centres for RMB trading," Britain and China said in a joint statement following the meetings.

Hub

London has already established itself as the Western hub for offshore RMB trading, as part of a partnership with Hong Kong and following an earlier agreement between Britain and China to support London as a RMB centre in September 2011, HM Treasury said.

Within the agreement investors will be able to apply for a licence to invest RMB directly into China, under a RMB Qualified Foreign Institutional Investor (RQFII) pilot. London will be the first place outside of greater China to have been granted an RQFII quota. London’s initial quota has been set at RMB80 billion, HM Treasury said.

Until now investors from London have gone through counterparties in Hong Kong before being able to invest in Chinese shares and bonds, potentially leading to higher costs.

The Prudential Regulation Authority will begin discussions with Chinese banks in London to enable them, for the first time, to apply to establish wholesale branches in the UK, allowing them to scale-up their business activities in the UK.

The move is a significant development for Chinese banks, the five biggest of which already have a London presence.

"A great nation like China should have a great global currency. Today we agreed the next big step in making London - already the global centre for finance - a major global centre for trading and now investing the Chinese currency too. More trade and more investment, means more business and more jobs for Britain," said Osborne.

London now accounts for 62 per cent of global RMB trading conducted outside of China and Hong Kong, and 28 per cent of all international RMB payments are made in the UK (the most outside of Hong Kong and Mainland China) surpassing Singapore. As a result, London’s RMB market is the most active RMB centre in the world outside of Greater China, making it also the first G7 country to agree a RMB swap line with China.