Germany’s inclusion of yuan in reserves signals wider global role for currency

By Wang Jiamei Source:Global Times Published: 2018/1/16 20:23:39

Deutsche Bundesbank, Germany's central bank, has decided to include the yuan in its reserves, a move that will not only further boost the internationalization of the currency but also indicate Germany's willingness to maintain close economic and trade relationships with China.

Speaking at the Asian Financial Forum in Hong Kong on Monday, Deutsche Bundesbank's board member Andreas Dombret said that, "The renminbi is used increasingly as part of central banks' foreign exchange reserves," thanks to the currency's growing international role in global financial markets. Dombret also mentioned that his bank's decision was made following the European Central Bank's 500 million euro ($611 million) worth of investment in the yuan last year.

More than 60 countries and regions such as Singapore and Russia have included the yuan in their foreign exchange reserves. While the need to diversify the currency composition of their reserves may play a part, there is no denying that the stability of the yuan is the most important prerequisite for it being accepted by these countries.

As the US dollar fell further recently, the yuan has been performing relatively strongly against the dollar, with the yuan's central parity rate against the dollar hitting the highest level in more than two years on Tuesday. As for Germany, the leading economy in the EU has had close trade and investment relationships with China, and there is every sign that the two countries are willing to maintain and consolidate those ties. So while Dombret did not disclose the amount that would be allocated for the yuan, it can be expected that Germany will increase investment in yuan-denominated assets once the yuan is included in its reserves.

The yuan's consolidated status as a global reserve currency may also be attributed to China's continuous efforts in opening up the financial sector. In November 2017, China announced plans to open its financial sector to greater foreign investment by relaxing some restrictions that had prevented overseas companies from holding controlling stakes in banking, securities, fund management and futures trading joint ventures, according to Vice Finance Minister Zhu Guangyao.

Such efforts to further open China's financial sector to global investors will be conducive to making the currency more freely used, offering a welcoming and convenient environment for investors to conduct yuan-denominated business both domestically and internationally.

In this sense, for countries like Germany, the inclusion of the yuan in its reserves will not only be helpful to its diversification strategy, but also an important way to benefit from China's opening-up dividend.

The author is a reporter with the Global Times.


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