Willingness of Foreign Institutions to Hold Yuan Assets Is Growing, SAFE Says
Yicai Global
/SOURCE :
Willingness of Foreign Institutions to Hold Yuan Assets Is Growing, SAFE Says

(Yicai Global) April 21 -- "We are optimistic about the rising yuan assets held by foreign central banks. This reflects the yuan's formal inclusion in the SDR currency basket with the opening of China's financial market, and the increasing willingness of overseas institutions to accept yuan-denominated products and to hold yuan assets," said Wang Chunying, spokesperson for China's State Administration of Foreign Exchange (SAFE).

Wang said this at a press conference held yesterday in the State Council's Information Office.

By the end of last year, China's yuan assets directly held by foreign central banks totaled USD81.1 billion (CNY563.5 billion), an increase of 13 percent over the end of last year, she said, citing SAFE's statistics. Of these, 92 percent are debt securities, with equities and investment funds making up 7.4 percent.

The figure the IMF released is USD84.5 billion. A small gap exists between the yuan assets size of Chinese residents directly held by foreign central banks monitored by SAFE and the figure above.

Aside from the conversion factors, other small factors also apply, such as foreign central banks holding yuan securities issued by non-resident issuers which, after raising funds, again invest in domestic yuan assets, Wang noted. It could also be that foreign central banks hold domestic yuan assets through agents. Holders in such situations show in SAFE statistics as non-resident issuers or agents.

SAFE is optimistic about the rising yuan assets held by foreign central banks, Wang said.

This reflects the yuan's formal inclusion in the IMF's strategic drawing rights (SDR) currency basket and the increasing willingness of overseas institutions to accept yuan-denominated products and to hold yuan assets. Foreign central banks seldom held yuan-denominated products in the past, but they now hold them in large volume, helping to stabilize China's foreign-exchange supply.

Foreign central banks hold many yuan-denominated bonds, particularly treasury bonds. This not only satisfies the requirements of low risk and high liquidity of reserve assets, but also reflects foreign investors' long term confidence in China's economy and financial system, Wang said.

The yuan has become increasingly prominent in cross-border capital flows in recent years, she noted. It made up 4 percent of global foreign exchange trading last year, statistics from the Bank for International Settlements show. The yuan made up 1.9 percent of global payments in February, per SWIFT statistics.

Foreign entities' holdings of yuan assets and yuan-denominated products growing from zero all prompt the conclusion that they have confidence in China's economy, finance, exchange rate and cross-border capital flows, she added.

 

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Keywords: Yuan Assets