China central bank officials see bigger global role for yuan as US dollar wanes
- Chinese currency offers stability and absolute returns for international investors, forex researcher says
- An internationalised yuan would help China to be finally secure, he says
Ding Zhijie, head of a research centre at the State Administration of Foreign Exchange, said the yuan had become a sought-after asset for global investors seeking stability and absolute returns as government bonds denominated in the US dollar, yen and euro offered little, or even negative, yields.
“Whether you look at interest rates or exchange rates, yuan assets have clear advantages now [against assets denominated in other currencies],” Ding said on Saturday at the Understanding China Conference in the southern city of Guangzhou, an event hosted by China to promote the country’s global influence.
China’s five-year government bonds still offer an annual yield over 3 per cent while US government debt of the same maturity offers only 0.4 per cent and the yield on German bonds is a negative rate of about 0.8 per cent.
In addition, China’s quick economic recovery from the coronavirus has helped the yuan to appreciate to a two-year high against the US dollar, despite the central bank’s efforts to slow the appreciation.
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Ding’s optimistic message reflected Beijing’s fresh confidence that the yuan, despite its inconvertibility under the capital account, will play an increasingly important role on the international stage to indirectly undermine the anchor role of the US dollar.
Ding said the yuan’s depreciation cycle since the summer of 2015 had failed to create any financial crisis in China, and it showed that the yuan, also known as the renminbi, was not typical of a developing country currency but one with “the basic characteristics of an international currency”.
An internationalised yuan would help China to be finally secure, Ding said.
He said that about 40 per cent of China’s outstanding foreign debt as of the end of 2020 was expected to be denominated in yuan.
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At the same event, Zhou Chengjun, head of the Financial Research Institute under the People’s Bank of China, echoed the sentiment, saying the international monetary system dominated by the US dollar was undergoing “profound changes” with the rise of the yuan in global trade and investment flows.
According to Zhou, the yuan accounts for over half of all cross-border trade settlement for the Greater Bay Area in the Pearl River Delta.
“We must deeply understand the big change in the international currency system and its far-reaching impact, and actively promote the internationalisation of the yuan,” Zhou said.
He said a globalised yuan would help China in many ways, from luring investment flows to upgrading supply chains. He also said China would give priority to “use of local currency” in future trade and investment deals.
