Yuan reserve pool boosts global financial security

Experts: Role of RMB in Alleviating Liquidity Problems of Rising Emerging Economies

The role of China’s renminbi in safeguarding global financial stability is set to steadily increase, with the world’s first multilateral renminbi pooling program demonstrating the currency’s potential to ease liquidity problems in emerging market economies. , said experts.

Sensible next steps for China to help ease potential financial strains in other emerging economies include expanding currency swaps and participating in debt restructuring programs, they said.

Their comments came at a time when the global financial landscape has become more fragile as US-led monetary tightening has increased the cost for many emerging economies of servicing external debt and exposed them to greater risks. debt crisis and liquidity problems.

To help participating economies weather potential periods of market volatility, the Bank for International Settlements announced last month that it would develop a Renminbi Liquidity Arrangement, a pool of yuan reserves from which participating central banks can get renminbi when needed.

Marking the first multilateral renminbi pooling system, the arrangement provides for the participation of emerging economies and can help them deal with potential financial stress by providing liquidity for international payments and helping to stabilize their currencies. said experts.

Wang Jinbin, an economics professor at Renmin University of China, said the arrangement will help meet participating economies’ demand for the renminbi and stabilize the exchange rate of their currencies against China’s currency.

This in turn can help currencies gain a stronger footing against a basket of key currencies, given the renminbi’s relatively stable value, Wang said.

Hoe Ee Khor, chief economist at the ASEAN+3 Bureau of Macroeconomic Research, said the arrangement is conducive to building a more resilient regional cross-border payment system that is less dependent on the US dollar.

With the deal marking an important step in enhancing the renminbi’s role in the global financial safety net, China can take more steps in this regard, thanks to the country’s importance in the global economy, experts said.

People’s Bank of China Governor Yi Gang said in June that central banks were ready to strengthen macroeconomic and financial policy coordination.

To help mitigate risks of worsening debt in some emerging economies, Wang of Renmin University said China could participate in debt restructuring and extension deals, and help indebted economies to issue bonds in offshore renminbi markets to raise funds for debt repayment.

Zhang Liqing, director of the Center for International Financial Studies, which is part of the Central University of Finance and Economics, said China may consider initiating more bilateral currency exchanges with emerging economies in financial difficulty, if any.

A currency exchange – in which a country’s central bank borrows renminbi with its own currency as collateral – can provide the country with renminbi liquidity for international trade payments and save dollar reserves for debt repayment, Zhang said.

By far, the PBOC has signed bilateral swap agreements with 40 monetary authorities. The renminbi’s share of global foreign exchange reserves rose to 2.88% in the first quarter from 2.79% a quarter earlier. The US dollar commands a 58.88% share.

Experts said China should maintain monetary policy stability and prevent drastic changes in financial conditions from generating ripple effects on other economies.

While the PBOC may attach more importance to price stability in the second half due to rising inflation, its policy should remain accommodative without a sharp tightening of monetary conditions, Huatai Securities said in a report.

Official data showed that accommodative monetary conditions boosted credit expansion. China’s new yuan-denominated loans totaled 2.81 trillion yuan ($418.97 billion) in June, up 686.7 billion yuan year-on-year, the PBOC said Monday.

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