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London sees more renminbi L/Cs

Renminbi (RMB) letters of credit are becoming an increasingly common sight in London as the UK capital seeks to establish itself as a leading offshore centre for the Chinese currency. Beijing meanwhile is planning to introduce yet more measures to encourage the use of the yuan in international markets, where demand for the Chinese currency appears to be growing strongly. A City of London official says: "The value of L/Cs seen by London's banks has reached a six-monthly average of 3.7 billion yuan (US$594 million), which is 20 times the six-monthly average value recorded in 2011." Other trade finance related yuan services are also reported to be growing strongly in the City. China meanwhile is expected to extend the range of RMB-denominated investments open to foreign institutional investors and relax the rules governing global yuan investments by individuals. Globally, cross-border settlements in yuan grew by 41.4 per cent in 2012, to 2.94 trillion yuan (US$472 billion) according to China's central bank.

Egyptian banks' problems finding foreign currency for L/Cs

Egyptian banks are hoarding foreign currency to meet their L/C obligations. This appears to be contributing to Egypt's currency crisis, which once more features sharp rises in the US dollar against the Egyptian pound (EGP). The price of the US dollar for Egyptians rose sharply during February after a period of stability earlier in 2013. By the end of February, one US dollar cost EGP7 on official markets, while the price of the greenback reached around EGP7.3 on the black market. These were the highest US dollar prices since the onset of Egypt's currency crisis, which began at the end of 2012. One US dollar cost just EGP 6.1 in November 2012, and since then Egypt's central bank has imposed new currency controls. Travellers cannot leave the country with more than US$10,000 in cash, and remittances abroad have become difficult. An increase in the price of the US dollar was inevitable in the light of current levels of violence. The currency crisis is not expected to ease substantially until Egypt finds more stability, but the country suffered widespread violence in February during which a state of emergency was declared in at least three provinces.

India puts tougher limits on L/C tenors

The Reserve Bank of India (RBI) has imposed a tougher limit on L/C tenors for imports of precious and semi-precious stones. The new measure is one several introduced by the Indian authorities with the aim of improving foreign currency controls. India's banks have been told that a maximum 90-day tenor now applies to L/Cs used for imports of precious and semi-precious stones. This latest instruction follows an RBI regulation introduced earlier stipulating that L/Cs for gold imports should be limited to 90 days from the date of shipment. The measures aim to help reduce India's current account deficit and discourage importers from using L/Cs for valuable commodities solely for arbitrage. Some importers have been using L/Cs, ostensibly for commodity imports, and then using the commodity as collateral for a bank loan or selling it for cash.

Bangladesh monitoring L/Cs in move to paperless trading

Bangladesh Bank (BB) introduced a new system for monitoring letters of credit as well as other international transactions. The system is centred on an integrated database launched by the central bank to monitor the country's entire foreign exchange operations. The database essentially allows the online monitoring of all bank transactions related to exports, imports and remittances. This should allow the banking regulator instant access to information on all L/Cs - including back-to-back L/Cs - as well as inward and outward remittances, inland bill purchases and export receipts. The central bank has also provided passwords to each chief executive of Bangladesh's banks so they will now be able to monitor foreign exchange transactions across all their branches. The new system, which is free to use for authorized users, is part of BB's drive towards paperless banking across the country.