Hong Kong/Singapore - Central banks from Asia to America are adding the Chinese currency to their portfolios as growing trade ties and a flurry of reforms by Beijing are leading reserve managers to view the renminbi as a viable reserve currency.
Acceptance of the Chinese currency among central banks and sovereign wealth funds which manage billions of dollars in assets is the ultimate objective for Beijing in its quest to make the renminbi globally recognised.
“More than 50 central banks are already there, but the number that are thinking about going there is also in the tens,” Jukka Pihlman, managing director and global head, central banks and sovereign wealth funds at Standard Chartered Bank told Reuters.
While some Asian central banks have led the initiative to adopt the renminbi as a reserve currency thanks to their growing trade ties with Beijing, this year has seen the renminbi breaking fresh ground.
Earlier this month, the United Kingdom raised 3 billion yuan via a landmark offshore sovereign yuan bond and kept the yuan proceeds into its foreign exchange reserves rather than converting them into dollars or euros.
Halfway across the world, Australia publicly acknowledged it has allocated 3 percent of its foreign exchange reserves to renminbi.
While these numbers are tiny in proportion to the overwhelming presence of the US dollar in global reserve manager portfolios of about $12 trillion (R130 trillion) according to latest IMF data, the renminbi's giant strides over four years is a sign of how Beijing's promotion of the yuan in global trade has quickly borne fruit.
The renminbi is also gaining traction among financial institutions and multinational companies.
The yuan was the seventh-ranked global payments currency in August 2014 rising from 13th position in January 2013, according to SWIFT, a global payments provider.
This year alone, China has established offshore yuan hubs across several cities in Europe and has given bigger quotas to foreign investors looking to buy Chinese assets.
“UK and Australia have shown the way by publicising the addition of RMB (renminbi) to their reserves,” said Gerrard Katz, head of Asia FX trading at Scotiabank in Hong Kong.
“There is a lot of interest on CNH bonds from reserve managers globally and that is going to be a natural progress for internationalization of the RMB.” (CNH bonds refers to bonds denominated in Chinese currency issued outside the mainland.)
As more countries add the Chinese currency to their portfolios, pressure grows on the International Monetary Fund to include the renminbi in its internal Special Drawing Rights unit of account.
The basket currently includes the dollar, euro, pound and yen.
Adding the yuan to the SDR basket would be a big step for China, and would prompt may central banks which had held back through caution about the openness of Chinese markets to diversify some of their reserves into renminbi.
Media reports last week said the European Central Bank plans to add the renminbi to its foreign exchange reserves.
In a survey conducted by Central Banking Publications in June among 69 central banks, and sponsored by HSBC, two-thirds of respondents said the renminbi had become more attractive because of the relative strength and growing influence of China's economy. - Reuters