By using this site, you agree to the Privacy Policy and Terms of Use.
Accept
AmextaFinanceAmextaFinance
  • Home
  • News
  • Banking
  • Credit Cards
  • Loans
  • Mortgage
  • Investing
  • Markets
    • Stocks
    • Commodities
    • Crypto
    • Forex
  • Videos
  • More
    • Finance
    • Dept Management
    • Small Business
Notification Show More
Aa
AmextaFinanceAmextaFinance
Aa
  • Banking
  • Credit Cards
  • Loans
  • Dept Management
  • Mortgage
  • Markets
  • Investing
  • Small Business
  • Videos
  • Home
  • News
  • Banking
  • Credit Cards
  • Loans
  • Mortgage
  • Investing
  • Markets
    • Stocks
    • Commodities
    • Crypto
    • Forex
  • Videos
  • More
    • Finance
    • Dept Management
    • Small Business
Follow US
AmextaFinance > Markets > Forex > Column-Yuan won’t be FX reserve currency if no one buys China’s bonds: McGeever
Forex

Column-Yuan won’t be FX reserve currency if no one buys China’s bonds: McGeever

News Room
Last updated: 2023/05/16 at 5:34 AM
By News Room
Share
6 Min Read
SHARE

By Jamie McGeever

ORLANDO, Florida (Reuters) – faces significant long-term obstacles to becoming a global reserve currency of any great import, but the biggest challenge in the near term is the fact that nobody wants to buy Chinese bonds.

Foreign investors have been dumping Chinese bonds ever since Russia invaded Ukraine in February last year, wary that Beijing’s ties to Moscow could potentially expose overseas holders of Chinese assets to international sanctions.

The reversal was sudden – non-residents had poured money into Chinese debt securities almost every single month over the preceding decade – and so far, it has been sustained.

Figures through March this year compiled by macroeconomic data research firm Exante Data show that foreigners have been heavy sellers of Chinese bonds every month bar one since Russia invaded Ukraine.

“It is very hard to create a reserve currency, without attractive reserve assets. China has a problem. It wants foreigners to buy bonds but they have been selling since early 2022,” says Jens Nordvig, founder and CEO of Exante Data.

“Both the private sector and the official sector are reducing yuan exposure within their fixed income portfolios,” Nordvig adds.

Exante Data’s figures show foreign investors bought a net $558 billion of Chinese bonds between 2010 and 2021. From February last year through March this year they sold $115 billion.

DE-DOLLARIZATION?

The global ‘de-dollarization’ debate has found a new lease of life recently.

The dollar’s nominal share of global reserves is 58.35%, according to the International Monetary Fund’s currency composition of official foreign exchange reserves, or ‘Cofer’ data, the lowest since the euro’s launch in 1999.

Several countries, including Brazil and other major emerging economies in Asia and the Middle East, have called for trade in oil, commodities and other global goods to be invoiced in non-dollar currencies.

To be sure, the renminbi’s share of world FX reserves has more than doubled in the last seven years to 2.69%, according to the IMF’s Cofer data.

It has grown much faster than the yen, sterling, and currencies like the Australian and Canadian dollars and Swiss franc that are bundled together in the ‘others’ category in the Cofer data. But from a much lower base.

The nominal amount of global reserves held in renminbi was $298 billion at the end of last year, down from a peak of $337 billion 12 months earlier.

But in a pool of $12 trillion global reserves, of which nearly 80% is denominated in dollars and euros, these are very small numbers. There is a long way to go for the yuan to reach even the levels of sterling and the yen at 4.95% and 5.50%, respectively.

RESERVE STATUS

Any currency that has designs on attaining international reserve status must meet several criteria and fulfill several roles.

It should be widely accepted as a unit of reserve for central banks, an accounting unit for international trade, and a transaction currency for trading in global financial assets like equities and bonds.

Beijing has gradually allowed more institutions and central banks to enter the yuan-denominated bond market over the past two decades by relaxing rules around quotas, lock-up periods and registration requirements.

But as IIF economist Jonathan Fortun notes, it is a slow and uneven process, which will be made even slower and more uneven by the heavy selling of Chinese bonds recently.

“Any episode of large outflows concentrated in a single locale, as has been the case of China for much of last year, would be detrimental for a currency to achieve reserve status,” Fortun said.

The IIF’s capital flows data shows some minimal net inflows into China in recent months, but paints a broadly similar picture: demand for Chinese debt has evaporated.

Reluctance to own Chinese bonds comes amid growing pressure form Washington on its Group of Seven allies to impose restrictions on certain investments in China with national security implications. It didn’t make it into the final G7 communique, suggesting other G7 members are less enthusiastic.

But Washington is likely to keep pressing its allies to take a stand against what it considers Beijing’s use of “economic coercion” against other countries.

Beijing, in turn, could view this as the thin end of the wedge, effectively a call for companies, institutions and investors in some of the world’s richest nations to steer clear of China and allocate capital elsewhere.

Which is what bond investors, at least, are already doing.

(The opinions expressed here are those of the author, a columnist for Reuters.)

(By Jamie McGeever)

Read the full article here

News Room May 16, 2023 May 16, 2023
Share this Article
Facebook Twitter Copy Link Print
Leave a comment Leave a comment

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Finance Weekly Newsletter

Join now for the latest news, tips, and analysis about personal finance, credit cards, dept management, and many more from our experts.
Join Now
European leaders travel to Kyiv in push for 30-day ceasefire

Stay informed with free updatesSimply sign up to the War in Ukraine…

China’s J-10 ‘Dragon’ shows teeth in India-Pakistan combat debut

Even before the fog of war had begun to lift, the Chengdu…

Selling of dollar assets signals start of longer-term shift, warn investors

The dumping of US assets in favour of Europe’s resurgent markets signals…

Why travel didn’t bring the world together

Stay informed with free updatesSimply sign up to the Life & Arts…

What the turmoil in Asian currencies tells us

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects…

- Advertisement -
Ad imageAd image

You Might Also Like

Forex

Thailand’s weakening baht not all bad for economy – PM

By News Room
Forex

Sterling hits multi-month low, Fed holds rates steady amid inflation concerns

By News Room
Forex

Dollar index on verge of forming bullish ‘golden cross’ – BofA

By News Room
Forex

Japan warns against post-Fed yen slide

By News Room
Forex

Asian currencies stumble amid rising U.S. dollar and hawkish Federal Reserve stance

By News Room
Forex

Asian currencies under pressure due to Federal Reserve’s stance, says HSBC

By News Room
Forex

Dollar rallies, yen under pressure ahead of BOJ rate decision

By News Room
Forex

Gambia’s dalasi remains Africa’s strongest currency amid tourism and remittance inflows

By News Room
Facebook Twitter Pinterest Youtube Instagram
Company
  • Privacy Policy
  • Terms & Conditions
  • Press Release
  • Contact
  • Advertisement
More Info
  • Newsletter
  • Market Data
  • Credit Cards
  • Videos

Sign Up For Free

Subscribe to our newsletter and don't miss out on our programs, webinars and trainings.

I have read and agree to the terms & conditions
Join Community

2023 © Indepta.com. All Rights Reserved.

YOUR EMAIL HAS BEEN CONFIRMED.
THANK YOU!

Welcome Back!

Sign in to your account

Lost your password?