The United Kingdom and China signed an agreement on Monday to work on setting up a clearing and settlement service for renminbi transactions in London, following the signing of a similar agreement between Germany and China on Friday.

The two agreements highlight fierce competition between European financial centers to take advantage of the renminbi's internationalization.

"The agreements both Britain and Germany signed with China show that European powers are keen to engage in opportunities arising from the renminbi's internationalization," said Andrew Carmichael, a partner at the London-headquartered law firm Linklaters.

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Financial sector experts in London have welcomed the new memorandum of understanding signed between the Bank of England and the People's Bank of China, the nation's central bank, hailing it as a milestone in boosting London's advantage in becoming the premier Western hub for handling offshore renminbi transactions.

Gerry Grimstone, chairman of TheCityUK, a London-based financial services association, said the agreement between BOE and PBOC will cement London's position in renminbi trading.

"This, in turn, will underpin ever greater flows of trade and investment between the UK and the world's second-largest economy," Grimstone said.

Mark Boleat, policy chairman for the City of London Corp, added that a potential clearing bank in London will help reinforce confidence in the British capital for renminbi activities. "It should encourage more UK companies to use the renminbi as a currency for international trade," he said.

Carmichael said the signing of the MOUs is an indication that PBOC has concrete intentions to work with the central banks of both Britain and Germany to set up a clearing bank, rather than just as a gesture of "warm friendship".

He said Britain and Germany are not in competition with each other to secure a clearing bank because it is possible for Europe to have multiple official clearing banks appointed by the PBOC.

"For example, in Asia, there are clearing banks in many financial centers, including Hong Kong, Macao, Singapore and Taipei. So, the same can happen in Europe," Carmichael said.

Carmichael also said that having a clearing bank in a European financial center will help renminbi transactions locally because deals no longer will have to be cleared through Hong Kong.

"So you will have your local clearing bank in your time zone. This makes transactions easier and will save time and costs for some transactions," he said.

Maggie Zhao, a senior associate at the Clifford Chance law firm in London, said although there is no pressing need for any financial center in Europe to set up clearing services with PBOC, appointing a clearing bank in Europe nevertheless is a demonstration of political commitment.

"Having a clearing bank in Europe would support the efficient transfer of renminbi funds in the European time zone, so a European clearing bank would complement the role of Hong Kong's clearing facilities," Zhao said.

"The agreement on Friday shows Germany's hope to position itself as a strong renminbi center in Europe. And the agreement signed between Bank of England and PBOC on Monday shows the same initiative taken by the British government. They are all very keen to support their countries' financial industries in increasing renminbi transactions," she said.

Global use of the renminbi has gained momentum since China started to liberalize its currency after the financial crisis of 2008.

Renminbi use in international trade finance grew to 8.66 percent in October 2013, from just 1.89 percent in January 2012, according to Society for Worldwide Interbank Financial Telecommunication figures.

This milestone made renminbi the second-most used currency for trade finance internationally, just behind the US dollar, which has a share of 81.08 percent. About 18 percent of China's global trade is now denominated in yuan, compared with less than 1 percent nearly four years ago.

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