Taking a leaf out of Hong Kong's blueprint in being the leading offshore yuan hub after the establishment of Bank of China (Hong Kong) as a clearing bank, the authorities are pressing ahead with having one for the city of London.

The move will help expand the Chinese currency's footprint beyond Hong Kong, where more than 80 percent of yuan trade settlement transactions are handled and foster greater confidence among European companies to adopt the yuan, also known as the renminbi, as a currency for trade.

"The UK and Chinese governments are in active discussions now about the appointment of a RMB clearing bank in London, recognising London's role as the Western centre of offshore RMB trading," Britain's finance minister George Osborne said on Thursday. He was speaking at the British Chamber of Commerce Hong Kong.

All other offshore centres have Chinese banks as trade clearing institutions; Singapore has Industrial and Commercial Bank of China (ICBC) and Taiwan, Bank of China, as clearing institutions.

A clearing bank is considered a politically sensitive subject and is usually a homegrown entity with Bank of China and ICBC being the leading contenders for this role, according to trade sources.

At present, London mainly relies on Hong Kong's offshore yuan infrastructure to obtain yuan liquidity and clearing service, with Standard Chartered Bank tying up with Agricultural Bank of China in December to provide yuan clearing services there.

The yuan clearing bank set up in 2003 in the former British colony has created a channel for cross-border renminbi transactions through the banking system, and also laid a solid foundation for the burgeoning development of yuan business.

As a result, trade settled in yuan exploded with 18 percent of China's total global trade now settled in yuan compared with 2 percent in 2010.

Yuan deposits, including outstanding certificates of deposits, was over 1 trillion yuan ($164.57 billion) in 2013, more than triple that of 2010, data from the Hong Kong Monetary Authority showed.

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Competition among potential offshore yuan centres, including Taiwan, Singapore, London and Luxembourg, has intensified as Beijing steps up efforts to promote the wider use of its currency.

The first international RMB conference in London will be hosted this summer, Osborne added.

The UK signed a 200 billion yuan ($32.9 billion) three-year bilateral currency swap deal with China last year, becoming the first G7 country with such a swap line. It was later granted an 80 billion yuan quota for a yuan investment scheme.

Average daily turnover of foreign exchange products, including spots, forwards, swaps and options in London climbed to $15.6 billion in the first half of 2013, more than doubling that of a year earlier, according to City of London.

While London's position as the world's biggest foreign exchange and bond trading centre gives it advantages, regional rivals such as Luxembourg, Paris, Frankfurt and Switzerland, also want a part of the growing yuan business.

China's yuan has overtaken the Singapore dollar and Hong Kong dollar to become the 8th most used world payments currency, as well as the second in trade finance, global transaction services organisation SWIFT said.

($1 = 6.0764 Chinese yuan)

(Editing by Saikat Chatterjee and Jacqueline Wong)

By Grace Li and Michelle Chen