China's central bank announced on Wednesday direct trading of the yuan against sterling.

The announcement came after Chinese Premier Li Keqiang began his visit to London on Tuesday.

"The direct yuan-sterling trade is good for forming a direct exchange rate between the renminbi and the British pound and reducing exchange costs," the People's Bank of China (PBOC) said in a statement on its website.

The PBOC promised "active support" for yuan-sterling direct trading and the China Foreign Exchange Trading System said yuan-sterling direct trade will start on Thursday.

Previously, the yuan-sterling reference rate was calculated on the yuan-U.S. dollar central parity rate, and the pound-dollar rate. As the two currencies can now be directly traded, the yuan-sterling rate will be set by the average prices offered by market makers before the opening of the interbank foreign exchange market.The move should help London's bid to become a renminbi offshore center.

China has allowed direct onshore trade in a number of currencies to lower transaction costs, including the Japanese yen, Australian dollar, New Zealand dollar, Malaysian ringgit and Russian ruble. Currency swaps with foreign governments have increased overseas circulation of the yuan.

"Yuan-sterling trade is another important step toward internationalization of the renminbi," said Helen Wong, president and chief executive of HSBC China, one of the market makers.

Britain is China's third largest trading partner and the second largest investor among European countries. Sino-British bilateral trade reached 70 billion U.S. dollars last year.

The government is gradually relaxing its hold over the yuan and making it a global reserve currency. China is also under pressure to diversify its foreign exchange reserves--the world's largest--which stood at 4 trillion U.S. dollars at the end of May.

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