Australia's RBA $1.6 Billion Investment in Chinese Yuan

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Australia's RBA $1.6 Billion Investment in Chinese Yuan

 

The Reserve Bank of Australia (RBA) has shown confidence in the Chinese yuan's future role as a reserve currency and has said it will invest $1.6 Billion in Chinese government debt.

 

The Central Bank will put 5 per cent of its $32.4 billion in net foreign exchange reserves into Chinese sovereign bonds, it said last Wednesday.

 

This month China allowed direct trade between the Australian dollar and the yuan, or renminbi (RMB), which will encourage the gradual opening of China's financial system.

 

The RBA's deputy governor Philip Lowe said the investment reflected the deepening relationship between the two nations, and it would improve the central bank's understanding of our biggest trade partner. ''It provides greater diversification of our investments and will help with our understanding of the Chinese financial markets,'' Dr Lowe said in Shanghai.

 

''Over the long run, and particularly as capital account liberalisation occurs in China, the RMB is likely to become one of the major reserve currencies of the region.''  Dr Lowe said the investment was part of a broadening in Australia's ties with China from trade to finance. 

 

The RBA also signed a $30 billion swap agreement with the People's Bank of China last year, which it said would boost the availability of yuan in Australia, especially at times when markets were stressed.

 

Treasurer Wayne Swan said the latest deal was a milestone in realising these ambitions, which Prime Minister Julia Gillard also pursued in a recent round of meetings with Chinese leaders. ''Strong financial linkages between our economies will ensure that Australia is even better positioned to benefit from the shift in global economic growth towards Asia,'' Mr Swan said.

 

Financial links between Australia and China have been boosted by a sharp increase in two-way investment flows in recent years, with much of the Chinese investment going into the resources sector.

 

In the longer term, Dr Lowe said both nations could benefit from further Chinese investment in Australian projects, while China offered a chance for the $1.5 Trillion pool of superannuation to diversify.

 

This sounds very promising for Australia's future indeed...