China moves to make yuan a global reserve currency, unveils new central bank tools
By Aboki Forex —
China has taken another step in its push to rival US financial markets and turn the yuan into a global reserve currency. People’s Bank of China Governor Pan Gongsheng announced new measures on Wednesday to upgrade the central bank’s toolkit and make yuan assets more attractive to foreign investors.
He hinted at a shift toward an overnight policy rate framework. He also launched a new facility that lets foreign central banks and financial organisations get yuan liquidity by using their holdings of Chinese government bonds as collateral.
These moves bring China’s monetary policy closer to that of major central banks like the US Federal Reserve. The Fed uses overnight rates as its main policy benchmark and runs a facility that lets foreign institutions borrow dollars against their US Treasury holdings. Those arrangements help make Treasuries the world’s most liquid and widely held assets.
The announcements came at the annual Lujiazui forum in Shanghai. According to Wee Khoon Chong, Asia Pacific market strategist at BNY, the changes make Chinese government bonds look more like those in established sovereign bond markets. This makes them “a more attractive proposition as reserve assets.”
Pan’s comments add to signs that the PBOC may eventually move away from the seven-day reverse repo rate as its main policy benchmark. Expectations for such a shift have grown as the central bank has focused more on the overnight interbank rate, which accounts for the bulk of cash trading.