China Foreign Exchange Trade System (CFETS), a unit of the central bank, said a market based approach will help improve the formation of a direct exchange rate. Until now, the currencies had to be exchanged through the US dollar.

 

"[Direct trading] will help lower currency conversion cost for economic entities, facilitate the use of the renminbi and euro in bilateral trade and investment, promote the financial cooperation and enhance economic and financial ties between China and Eurozone member states," a statement by the People's Bank of China added.

 

Bilateral trade between China and the EU has grown to nearly US$500 billion and the share of it settled in renminbi is expected to triple to 5%-6% of China's global trade within the next three years. This summer had seen the appointments of several new renminbi clearing banks in major European financial centres, including London (where the CCB branch offers clearing services), Frankfurt (Bank of China), Paris (Bank of China) and Luxembourg (ICBC).

 

 "Direct trading of EUR-CNY represents yet another major step forward for the internationalization of the renminbi, and is particularly exciting in terms of what it means for accelerating adoption of the renminbi throughout the China-EU trade corridor,” Beng-Hong Lee, Deutsche Bank Head of Markets in China, comments. “We have already seen increased interest from European corporate treasurers and investors in incorporating the renminbi into their portfolios, and the establishment of direct trade of the two currencies makes take-up of the currency much easier and more cost efficient."

 

Deutsche Bank statistics show that renminbi cross-border trade settlement will increase by roughly 50% in 2014 to 6 trillion yuan, accounting for approximately 20% of China's global trade volume.