(26 April 2013 – Australia) Confidence in the Chinese yuan’s future role as a reserve currency for the Asian region has been highlighted by the Reserve Bank of Australia (RBA) as it commits to invest A$1.6 billion in Chinese government debt.
As Australia pushes to deepen financial ties with its biggest trading partner, the central bank will put 5 percent of its A$32.4 billion in net foreign exchange reserves into Chinese sovereign bonds, it said on Wednesday.
After China this month allowed direct trade between the Australian dollar and the yuan, or renminbi (RMB), the move is another attempt to spur on the gradual opening up of China's financial system.
RBA deputy governor Philip Lowe said the investment reflected the deepening relationship between the two nations and said 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 trend has also seen Australian banks' claims on China increase more than fourfold since 2008, to in excess of A$16 billion.
While the RBA expects the yuan to become a reserve currency in the long term, it is not widely held by central banks today.
The greenback still accounts for about 55 percent of the US$10.9 trillion (A$10.5 trillion) in the world's official currency reserves according to International Monetary Fund (IMF) figures.
The RBA signed a A$30 billion swap agreement with the People's Bank of China (PBoC) last year, which it said would boost the availability of yuan in Australia, especially at times when markets were stressed.
The government has made greater integration with Asian financial markets a key policy goal, through the white paper on the Asian Century by former Treasury secretary Ken Henry.
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,'' 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.