ECB move to add yuan to reserve currencies shows internationalization progress

By Xiao Xin Source:Global Times Published: 2017/6/14 22:23:39

China's efforts to internationalize the yuan received a boost from the European Central Bank (ECB) on Tuesday, as the ECB announced that it had added the Chinese currency into its foreign exchange reserves by cutting a small portion of its US holdings.

The announcement by the world's second-most important central bank marks a big step forward for China, which has set out on an ambitious path to match the yuan with its economy in terms of global clout. Nevertheless, it's all the more noteworthy that the ECB's endorsement of the yuan should be taken as impetus to deepen China's economic and financial market reforms.

In the announcement, the ECB revealed the completion of yuan-denominated investment equivalent to 500 million euros ($560.36 million) during the first half of the year, which it said reflects China's importance as one of the eurozone's largest trading partners.

The yuan purchase decision was taken in January by the ECB Governing Council but not revealed until Tuesday.

The investment marks the ECB's formal acceptance of the yuan in its foreign reserves nearly three years after it began to consider buying yuan-denominated assets.

This is evidently an indication that the pace of the yuan's internationalization has quickened since the Chinese currency gained new status as a member of the IMF's Special Drawing Rights (SDR) basket in 2016.

However it needs to be pointed out that the ECB's investment is relatively small so far, given that it has a total of 68 billion euros worth of foreign reserves, and the yuan is still a long way from the international status of either the US dollar or the euro.

While the increasing use of the yuan as a global currency and China's close trading links with the EU were cited in the ECB announcement, the dollar still accounts for most of the ECB's foreign reserves. It will take some time for the yuan to truly become a major reserve currency.

The reform and opening-up over the past few decades has made China's economy one of the world's largest, but there will need to be bolder reform drives to assure global investors of the investability of the yuan. This does not mean there should be any reckless moves to make the yuan fully convertible overnight, but there should be sustained and consistent efforts to establish the Chinese currency as yet another contributor to the stabilization of world financial markets.

The author is a reporter with the Global Times.


blog comments powered by Disqus