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15/1/2018 Bundesbank to include renminbi in its currency reserves

Renminbi
Bundesbank to include renminbi in its currency reserves
China’s currency rises after decision by Germany’s central bank

Emma Dunkley and Alice Woodhouse
AN HOUR AGO

The renminbi rose after Germany’s central bank said it would include the currency in its reserves, a
move seen as boosting the internationalisation of China’s currency.

Andreas Dombret, a member of Deutsche Bundesbank’s executive board, said at the Asian
Financial Forum in Hong Kong on Monday that the central bank had “decided to include the RMB
in our currency reserves”.

He said: “The RMB is used increasingly as part of central banks’ foreign exchange reserves; for
example, the European Central Bank included the RMB [as a reserve currency].”

The move comes after the renminbi became the fifth currency last year to join the International
Monetary Fund’s Special Drawing Right (SDR) basket, which is a collection of reserve currencies
that serve as an alternative to the US dollar.

The inclusion underscored China’s increasing prominence in the global financial landscape, and
reflected policies aimed at making the currency more freely tradable internationally.

Mr Dombret said: “The notable development from the European point of view over the past few
years has been the growing international role of the RMB in global financial markets.”

Last week, the People’s Bank of China decided to drop a mechanism it recently created to support
the renminbi and safeguard it against capital flight, in a sign of rising confidence in the currency.
Mr Dombret said the move was “something which we welcome very much”.

Speaking at the same conference, Stuart Gulliver, chief executive of HSBC, said that the
internationalisation of the renminbi would gain further support from the Belt and Road trade
initiative, which calls for building infrastructure links to bind China more closely with central and
Southeast Asia, the Middle East, Europe and Africa, and the development of the green bond market
in Asia.

Mr Gulliver said: “Both of these initiatives will fuel the internationalisation of the RMB. The
RMB . . . already has some momentum in terms of its inclusion within the SDR. As we continue to
see the Belt and Road develop, and as we continue to see green finance develop, a lot of this will be
done in RMB and this will increase the usage of RMB even further.”

But the internationalisation of China’s currency still faces significant headwinds.

“The level of RMB reserves, however, is still small compared to USD or EU,” Mr Dombret said. “It
proceeds in a number of small steps, but some of those small steps include a few steps backwards.
More recently, the RMB internationalisation process seems to have lost a little bit of momentum.”

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15/1/2018 Bundesbank to include renminbi in its currency reserves

Measures over the past year and a half to restrict capital outflows from China have been among
factors hindering the currency’s internationalisation.

Mr Dombret added that the exchange rate framework underpinning RMB lacked transparency
while some observers, also from the EU, had the impression that it was dominated by discrete
policy interventions from China.

The onshore renminbi, which is permitted to trade 2 per cent either side of a daily fix set by the
People’s Bank of China, was as much as 0.7 per cent stronger against the dollar on Monday at
Rmb6.4186, while the offshore renminbi, which is not restricted by the trading band, was 0.5 per
cent stronger at Rmb6.4260, levels not seen since late 2015.

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