China central bank issues first offshore Renminbi bond in London

China’s benchmark 10-year sovereign yield has dropped about 0.4 percentage point to 3.1 percent since the August 11 devaluation, rewarding those who held their nerve. Doubtless influenced by the events of the summer, financial institutions in China put “less government intervention in onshore equity markets” at the top of their list of urgently required policy reforms, while for global respondents it is in second place, behind liberalisation of the legal services market and judicial reform.

China intervened “heavily” in the foreign-exchange market in the last three months, spending an estimated total of US$229 billion (RM982.513 billion) to prevent the yuan from falling, according to the report.

“The renewal of this swap line and its increased size reflect the constructive approach that the Bank of England and the People’s Bank of China are taking to support the development of an effective and resilient renminbi market in London”, said BOE governor Mark Carney.

While acknowledging the IMF’s stance, the Treasury report suggested that its own position would depend on Beijing’s implementation of this new system for setting the currency’s daily reference rate.

Meanwhile, the progress of RMB internationalisation is so fast that commentators are speaking optimistically about the inclusion of the yuan in the worldwide Monetary Fund’s basket of reserve currencies in its review in November, a process that happens once every five years.

Those outflows have been exerting downward pressure on the value of the renminbi.

In this week of President Xi Jinping’s state visit to the United Kingdom, the London China Book Festival – launched Monday in London’s oldest bookshop – is a timely tribute to this year of China-U.K. Cultural Exchange.

The country’s foreign exchange reserves, which are seen as the foundation to support a strong currency and to cover the foreign debt, suffered an unexpected decline in August, as the central bank sold dollars to boost the yuan.

HSBC said on Tuesday that China’s yuan “ticks all the right boxes” for inclusion in the SDR basket.

But a revival of China’s offshore yuan bond market still seems a distant prospect, with demand from companies and non-Chinese borrowers remaining tepid, analysts say.

Now it is comprised of the USA dollar, euro, sterling and yen. International Monetary Fund member economies can exchange SDRs for one of these “freely usable” currencies.

Treasury said it will be important going forward for China to allow its currency to again rise in value against the dollar when market forces dictate such a move. “But they will not be able to sustain the currency’s strengthening in a weak economy”.