The race for China's currency

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Media captionChancellor George Osborne: "Over my lifetime it's (the Chinese currency) is going to become almost as familiar as the dollar"

Britain is late to the party.

But the chancellor, George Osborne, sees London winning the race to be the global hub for the Chinese currency - known as the yuan or renminbi (RMB) - and says that win will be important for "generations of Britons" to come.

Speaking to the BBC, the chancellor has admitted that the UK has been slow when it comes to China. He blames his predecessors over the past 10-15 years for not doing enough and relying too much on Europe. But he says that he has made it his personal mission since coming to office to rebalance the economy.

He's right that British exports have doubled in the past three years, but as I have written before, China is one of the top three contributors to the British trade deficit. The UK sells China much less than it buys from the world's second largest economy.

On his eye-catching announcement today that London is in position to become the global trading hub for the Chinese RMB, Mr Osborne tells me that he thinks the Chinese RMB will become almost as familiar as the US dollar in his lifetime.

He claims that this will benefit all of Britain, not just London, because it helps the financial services industry in places such as Edinburgh and Manchester.

The announcement, though, contains just a couple of small steps.

One of the steps is that the UK will be able to invest directly in China using the RMB - up to 80bn RMB initially. It will be the first place outside of Hong Kong to be able to do so under what's rather inelegantly called the RQFII (RMB Qualified Foreign Institutional Investor) scheme.

The second step is that Chinese banks will begin discussions with the British regulator, the Prudential Regulatory Authority, to set up branches in Britain. The chancellor told me that it would be up to the Chinese side as to whether they will lend in the retail sector. You can see Robert Peston's thoughts on that here.

These moves are not to be sniffed at in terms of progress, but there is still a long way to go before the Chinese currency is sufficiently loosened from government control. It is not a currency that can be traded freely at present.

As London's position in the global foreign exchange market is one of its strengths (London accounts for 62% of the market), it is important for it to attract RMB business.

The currency of the world's second largest economy may well begin to rival that of the largest economy in due course. The question will be whether the Chinese will be willing to have another country be the international hub for it when the government is promoting Shanghai as a future international financial centre.

The answer to this question will matter if the chancellor is right and will affect generations of Britons.