The largest offshore yuan center, Hong Kong, which accounts for 70 percent of overseas yuan deposits, held deposits of 698.5 billion yuan by May, according to data released by Hong Kong Monetary Authority.

"In financial terms, Luxembourg is even more important than Paris or London," says Nicolas Mackel, chief executive of Luxembourg for Finance, an agency that promotes Luxembourg as an international financial center. "We consider ourselves as a European hub especially in financial services. We don't do trading financing in that sense. But there are other services relating to renminbi that we could focus on."

More than half of Chinese investment in Europe gets structured through Luxembourg. The increasing presence of Chinese banks will also give his country an edge, Mackel says.

Luxembourg is already the European headquarters of BOC and Industrial and Commercial Bank of China.

China's Construction Bank, the second-largest Chinese lender, will soon open its European headquarters there.

Joachim Nagel, member of the executive board of the Deutsche Bundesbank, says the strong trading position between Germany and China has generated enough momentum for setting up an offshore yuan-trading center in Frankfurt.

"I believe the renminbi will develop into a global reserve currency. There is intense competition in the financial world for being a part of the renminbi trading system," says Nagel.

He says the biggest challenge for contenders such as Germany would be to initially maintain a certain amount of liquidity in Frankfurt. Major multinational companies and banks could be the "ice breaker" by bringing in the desired volumes through yuan trading.

"The renminbi is a big currency and will play a bigger role in the future in the international market. I think the market is big enough to have multiple yuan-trading centers in Europe," Nagel says.

Mongars, of the Bank of France, feels that there would not be too much competition among the major European financial centers, because the currency swap deal will serve as a back-up facility when there is a serious liquidity shortage of the yuan in the eurozone, and also negates the need for an alternative funding source.

Wim Raymaekers, head of the banking market at the Society for Worldwide Interbank Financial Telecommunication, says financial institutions in the UK, France and Germany are increasingly adopting the yuan to support trade settlement by their corporate customers.

Outside Europe, Dubai is likely to become another major offshore yuan-trading center after Taipei as it refocuses on its roles as a regional hub for trading, logistics and tourism, says a recent report published by Standard Chartered Bank.