The British and Chinese governments are in talks to set up a renminbi clearing bank in London to increase the supply of yuan products in Europe.
The move will expand the Chinese currency’s presence beyond Hong Kong and will boost the development of the offshore renminbi market.
Additionally, the move will make RMB transactions in the financial centre more efficient and quicker.
Both the countries have also agreed to allow the Commercial Bank of China (ICBC) to issue renminbi bonds in London.
In order to set up the new clearing bank, London will depend on Hong Kong’s offshore yuan infrastructure to receive yuan liquidity and clearing service, with Standard Chartered Bank joining with Agricultural Bank of China in December to offer yuan clearing services there.
The Chinese central bank said: "We will gradually perfect the renminbi (yuan) formation mechanism and expand the exchange rate’s floating range in an orderly manner.
George Osborne, UK finance minister, said: "London had become the centre of yuan trading in the West. The first international RMB conference in London will be hosted this summer.
"These steps will bring the UK and China closer together, and promote trade and commerce," he added.