Hold­ing of ren­minbi by world’s cen­tral banks rises

China Daily (USA) - - FRONT PAGE - By XIN ZHIMING and ZHOU LANXU

Cen­tral banks across the world in­creased their hold­ings of ren­minbi by 32.6 per­cent in the se­cond quar­ter, de­spite the cur­rency’s de­pre­ci­a­tion against the green­back, ac­cord­ing to the lat­est fig­ures re­leased by the International Mone­tary Fund.

An­a­lysts said the steady in­crease sig­nals a strong mo­men­tum in use of the ren­minbi abroad, or ren­minbi in­ter­na­tion­al­iza­tion, and the ra­tio could fur­ther rise in the com­ing years.

“It is cer­tain that yuan in­ter­na­tion­al­iza­tion will con­tinue in the long term, im­mune to short-term mar­ket fluc­tu­a­tions and eco­nomic head­winds,” said Zhang Xin­grong, man­ag­ing di­rec­tor at the Bank of China’s In­sti­tute of International Fi­nance.

By the end of June, to­tal ren­minbi re­serves of 149 mone­tary au­thor­i­ties, who re­port forex hold­ings to the IMF’s Cur­rency Com­po­si­tion of Of­fi­cial For­eign Ex­change Re­serves data­base, has risen for four con­sec­u­tive quar­ters from 1.07 to 1.84 per­cent of their to­tal forex re­serves.

This was the first time the ren­minbi’s pro­por­tion ex­ceeded that of Aus­tralian dol­lar, of­fi­cial data re­leased by the end of Septem­ber said.

“China has made sig­nif­i­cant progress in fi­nan­cial mar­ket open­ing-up and par­tic­i­pated in an ex­pand­ing scale of trade, cross-bor­der in­vest­ment and hu­man re­source move­ment, nat­u­rally strength­en­ing the yuan’s international role,” Zhang said, adding that the growth of the yuan’s share in global re­serves could help sta­bi­lize global fi­nan­cial mar­kets with cur­rency di­ver­si­fi­ca­tion.

Mei Dongzhou, an as­so­ciate pro­fes­sor at the Cen­tral Univer­sity of Fi­nance and Eco­nom­ics, re­garded the in­clu­sion of the yuan into the Spe­cial Draw­ing Right cur­rency bas­ket as a ma­jor rea­son for its greater role in global re­serves. The in­clu­sion has in­duced au­to­matic yuan al­lo­ca­tion in of­fi­cial re­serves and buoyed world­wide ac­cep­tance of the cur­rency, he said.

Oct 1 marked the se­cond an­niver­sary of the yuan be­ing in­cluded in the SDR — a re­serve cur­rency built from a bas­ket of im­por­tant na­tional cur­ren­cies as­signed by the IMF — with a weight of 10.92 per­cent.

A re­cent re­port from Gold­man Sachs Group es­ti­mated the ren­minbi’s share in global re­serves “should rise to around 3 to 4 per­cent by the end of 2022”.

Ful­fill­ment of yuan in­ter­na­tion­al­iza­tion’s great po­ten­tial will rely on progress in the open­ing-up of China’s fi­nan­cial mar­kets and the de­vel­op­ment of fi­nan­cial mar­kets’ depth and breadth, which dic­tates the at­trac­tive­ness of ren­minbi as­sets, Mei said.

Fang Xing­hai, vice-chair­man of the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion, told re­porters in Septem­ber that the coun­try will keep im­prov­ing both the con­ve­nience of for­eign cap­i­tal in­vest­ing in China and fun­da­men­tal mar­ket rules, in­clud­ing trad­ing sus­pen­sion, in­for­ma­tion dis­clo­sure and trade set­tle­ment.

Mei warned about the risk associated with fur­ther ren­minbi in­ter­na­tion­al­iza­tion, given the po­ten­tial pres­sure on the safety of cross-bor­der cap­i­tal flows.

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