Singapore to include yuan assets in official foreign reserves

PUBLISHED : Thursday, 23 June, 2016, 7:54pm
UPDATED : Thursday, 23 June, 2016, 7:54pm

Singapore will add yuan-denominated investments into its official foreign reserves from June 2016 onwards, a move that recognises Beijing’s financial liberalisation and may boost demand for the Chinese currency.

Singapore’s move will be much welcomed by Beijing as the yuan is officially slated to become a component currency of the International Monetary Fund’s Special Drawing Rights this October.

China’s aspirations to make the yuan a global currency encountered setbacks in late 2015 and early 2016 when Beijing’s poor communication over its exchange rate policy roiled markets across the world.

“Maybe it’s too much to call it ‘delivering coal in a snowy day’, but certainly it’s a good thing for China and the yuan,” said Zhou Hao, a Singapore-based economist at Commerzbank. “It may also set an example for other countries to follow.”

Singapore is one of the major offshore yuan markets along with Hong Kong and London. In addition, Singaporean institutions from Temasek Holdings to Government of Singapore Investment Corp have huge investments in China.

The Monetary Authority of Singapore, which held US$247 billion official foreign reserves as of the end of May, started investing in China’s bond market in 2012, but “restrictions on the repatriation of these funds” have made it hard to label them as official reserves, it said.

But China’s recent moves in liberalising the onshore yuan market to foreign investors, including the opening up of the interbank bond market and eased control over remittances, have made it possible to include yuan investments into reserves, the agency announced.

About 50 countries have taken yuan as part of their foreign exchange reserves, and the yuan will make up 10.9 per cent of the IMF’s global reserve currencies basket. However, only 1.1 per cent of total foreign assets held by monetary authorities around the world were denominated in yuan as the end of 2014, according to the International Monetary Fund.

“Singapore has its own reasons to diversify its foreign exchange reserve holdings, but whether the yuan will become a truly global currency will depend on China’s economic development and yuan performance,” said Chen Bingcai, a researcher with the National School of Administration, a training ground for officials.