July 23, 2012 / 6:53 AM / in 5 years

UPDATE 2-Sovereigns buy China bonds but quiet on how much

4 Min Read

By Pete Sweeney and Adriana Nina Kusuma

SHANGHAI/JAKARTA, July 23 (Reuters) - Indonesia's central bank has started investing in China's interbank bond market, but neither country will say how much, underlining Beijing's desire to promote yuan internationalisation without giving too much detail.

Bank Indonesia (BI) spokesman Difi A. Johansyah told Reuters on Monday that the bank is buying "minimum risk" Chinese government bonds to diversify its currency holdings and reduce dependence on the dollar.

"This is risk management and our principal is asset management. Due to uncertainties over global conditions, we do not put (all our assets) in one basket."

However, neither China's central bank nor BI mentioned how much would actually be invested. Johansyah said that BI is "certain that yuan will be a world reserve currency" -- adding that the bank views China as one of the world's "strongest countries" -- but declined to add any financial detail.

In 2010, China began allowing foreign central banks to directly invest in its domestic interbank bond market without going through the Qualified Foreign Institutional Investor programme which allows foreign investors to buy onshore stocks and bonds under a quota system.

The new policy was intended to widen investment channels for foreign central banks and promote the international use of the Chinese currency in foreign reserves.

China has currency swap agreements with around 19 countries, according to Reuters data, and any of them in theory can apply to use their yuan reserves to invest in Chinese bonds.

However, most of the participating countries do not oblige their central banks to declare their investments. Public announcements have been liberal with positive diplomatic language but short on hard data.

Confidence in China's Future

Chinese leaders must weigh the benefits of positive publicity for the yuan internationalisation programme against the risk that more detailed information on foreign moves in and out of Chinese bonds would become another proxy index of foreign confidence in China's future.

Many central banks also don't disclose detailed information about the composition of their foreign reserves.

In April the Bank of Korea announced that it had been approved to purchase 20 billion yuan ($3.14 billion) worth of Chinese bonds but did not provide additional details. On July 1, the official Xinhua news agency reported that Korea had begun making purchases without saying how much.

Japanese Finance Minister Jun Azumi said in March Japan will be allowed to buy 65 billion yuan worth of Chinese bonds but also refrained from providing numbers.

Other major trading partners have also moved to sign currency swap agreements, most recently Brazil, which has been an outspoken critic of the dollar's dominance as a reserve currency. Australia reached a deal in March.

Besides central banks, China allows yuan clearing banks in Hong Kong and Macau and foreign banks that help settle cross-border trade in yuan to trade in its interbank bond market.

Another reason Beijing is resisting further disclosure is to avoid highlighting how small foreign bond holdings are relative to the total market.

The central bank does not publish official data on foreign holdings of Chinese debt but China's main bond clearinghouse does publish a data series widely considered to be a proxy for foreign holdings of Chinese interbank bonds. That figure stood at 96 billion yuan at the end of June, up from 87 billion yuan at the end of 2011, out of a total of 22 trillion yuan of outstanding bonds in China's interbank market.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below