EBRD sees global role for the yuan

Lender believes Chinese currency will have a major part in transactions

The European Bank for Reconstruction and Development is interested in working with the Chinese monetary authority in developing local currency lending, backed by a further improved local capital market, the bank’s president told China Daily.

Given his confidence in the Chinese currency, EBRD President Suma Chakrabarti doesn’t expect serious depreciation of the renminbi and believes it will become one of the international reserve currencies gradually, although the process will take some time.

After the global financial crisis, central banks around the world sought better measures against systemic risks associated with large stocks of foreign currency loans. They are reforming policy frameworks for borrowing in local currency from overseas, to offset fluctuations in foreign exchange markets.

This also requires developed local capital markets to provide adequate sources of local currency funding.

The EBRD launched 40 percent of its investments in local currency this year, especially to support the development of the small and medium-sized enterprises in the targeted countries, mainly in debt financing.

The renminbi has weakened around 8 percent against the US dollar since April, which triggered some market concerns about debt borrowed from overseas in foreign currency.

“Currency needs to find the right level, I don’t worry about Chinese renminbi depreciation,” said the EBRD president, who shared an optimistic outlook on the world’s second-largest economy.

Yi Huiman, chairman of the Industrial and Commercial

billion

Bank of China, suggested on Wednesday that foreign exchange rate risks should be better managed along with overseas investment. Such measures include diversifying foreign exchange rate risk hedge tools and enhancing monitoring of market fluctuations.

By the end of September, China’s foreign currency loans stood at 2.45 trillion yuan ($352.6 billion), down by 1.6 percent from a year earlier, according to data from the PBOC.

Another key cooperation with the Chinese monetary authority could be in the green economy area, said Chakrabarti, without disclosing details.

China became one of the EBRD’s 69 shareholders in January 2016. The EBRD this week promoted its projects in Central Asia to Chinese government officials, bankers and business leaders who are also looking for co-financing partners to continually implement the Belt and Road Initiative.

The EBRD has 25 more projects in the pipeline with Chinese entities, including more projects to be co-invested with the China-initiated Asian Infrastructure Investment Bank. “They will come through in the next couple of years, and each of the projects should meet high standards,” he said.

“One of the challenges along the BRI is to make sure the projects don’t add too many debt problems in the relevant countries,” especially for public sector projects. It also needs to make sure the investment is high-quality and the debt is sustainable, according to Chakrabarti.

It is a good trend for Chinese investors to focus more on making sure overseas investments are high-quality, which will lead to much more certain returns, said the EBRD president.