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One of Europe’s largest financial intermediaries plans to accept mainland Chinese bonds traded in Hong Kong as collateral, helping the drive by Beijing to internationalise its currency.
Euroclear, the Brussels-based central securities depository with more than €43tn of assets under custody in 2025, is working with Chinese and Hong Kong authorities to participate in the Bond Connect programme that links the mainland with offshore investors.
Chief executive Valérie Urbain told the FT the move was an attempt “to see how we can contribute to the internationalisation of the renminbi” and was part of a push to expand services for clients.
“How can we partner with the Chinese market authorities to continue to increase the liquidity of the renminbi assets?” she asked.
Euroclear’s plan is to allow Chinese domestic bonds held by investors in Hong Kong through the programme — currently around $120bn — to eventually become eligible as collateral in the settlement of international transactions.
Urbain added that the move could potentially open €5tn worth of Chinese domestic government bonds to be used as collateral in the settlement of transactions managed by Euroclear, which would help drive up international demand for the renminbi and open up the Chinese bond market to western investors.
Collateral services for bonds traded through the Bond Connect programme are currently available through Hong Kong’s domestic market infrastructure.
“We have plenty of examples where . . . when the securities become eligible on the collateral management platform, clearly the take-up and the use of those securities increases quite substantially,” Urbain said.
The Chinese government owns a 7.25 per cent stake in Euroclear through its State Administration of Foreign Exchange (Safe), via the company Kuri Atyak Investment.
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China operates strict capital controls but Beijing is also pushing for greater international use of the renminbi to counter the dominance of the US dollar. Efforts include setting up bilateral currency swap lines, settling trades in domestic currency, and promoting the renminbi as a reserve currency to central bankers.
Euroclear cautioned that the effort could take years to set up. The move comes as the Hong Kong Monetary Authority and the Hong Kong Stock Exchange are pushing to build an international settlement house that could compete with Euroclear and Luxembourg’s Clearstream.
“We support the wider adoption of RMB bonds as eligible collateral in the global financial markets,” said a spokesperson for CMU OmniClear, controlled by the HKMA via the sovereign public Exchange Fund. “The use of Bond Connect bond holdings as collateral requires relevant Chinese mainland and Hong Kong authorities’ endorsement.”
Urbain said: “We are one of the largest collateral management service providers, and so we are seeing how we can find a way to on one side meet the regulatory requirements of China and at the same time also make sure that they understand the needs of agility and ease of transfer in a strict legal regime that international investors are looking for.”
If successful, it would be the first time Euroclear would accept its clients using Chinese domestic government bonds as collateral. Euroclear already allows the use of Chinese bonds issued in offshore renminbi as well as some domestic corporate bonds as collateral.
Euroclear’s push to expand its China business comes after the financial institution was in hot water over some €190bn in Russian central bank assets frozen on its books by EU sanctions due to the war in Ukraine, and which some countries wanted to use to bolster Kyiv’s war effort.
The initiative was abandoned over the legal risks of using the assets, something Urbain says has reassured Euroclear’s clients. “The fact that we have continued really to defend the rule of law . . .[has] continued to build some credibility towards clients,” Urbain said.
China is officially neutral in the conflict between Russia and Ukraine, but has been aiding Moscow’s efforts through the sale of crucial weapons parts and intelligence sharing, among other things, and the EU has included Chinese individuals and companies on its sanctions list.
Urbain shrugged off the risk of any potential sanctions for Euroclear’s business in China. “Sanctions, they can happen anywhere,” she said. “If there would be any sanctions, we would be bound by the sanctions. But . . . we have proven that that needs to be done in a very strict legal regime.”
