The London Stock Exchange has launched a yuan-denominated money market fund, allowing investors direct access to the Chinese interbank lending market.

The newly listed Exchange Traded Fund (ETF) is the first in Europe to offer both institutional and retail investors exposure to money market instruments that invest in the China Interbank Bond Market (CIBM) via Germany's Commerzbank and CCB International (CCBI), a subsidiary of China's second largest lender, China Construction Bank (CCB).

The fund, known as Commerzbank CCBI RQFII Money Market Ucits ETF, allows investors to make use of ETFs, which are traded like shares and are widely regarded as an inexpensive and low-risk way of investing.

According to the City of London Corporation, through the first half of 2014, London's RMB deposits hit a record high and reached a total amount of ¥25.4bn (£2.6bn, $3.87bn), representing a 74 percent increase as compared to the end of 2013. Corporate RMB deposits increased significantly to ¥16.7bn, a 454 percent increase compared to the end of 2013.

British finance officials said the launch of the fund will pave the way for the Chinese yuan to become a major international payment currency in the future.

"We are very excited about the internationalisation of the RMB. We see it as one of the most important financial developments in a century. We think that obviously, China's economy is the second largest in the world and it will become the largest.

"And we are very keen to support China in developing RMB products and trade, and of course we want London to be the primary centre for offshore RMB trading. And at the moment, there is evidence to suggest that we are quite successful," said Andrea Leadsom, Economic Secretary to the Treasury.

Britain last year selected China Construction Bank as the first yuan clearing bank, making it more convenient for companies in the UK to use the Chinese currency.

More about economics