Malaysia and other countries have bought *** bond adjustments**

The internationalization of the national currency has made progress in recent days. According to media reports, the Malaysian Central Bank has already bought renminbi-denominated bonds as its foreign exchange reserves, which may also indicate that other Asian countries will also further purchase renminbi bonds for diversification of external reserves. Analysts believe that this will raise the credibility of the renminbi to a whole new level.

Market opening has achieved initial success

At the end of August, Malaysia’s foreign exchange reserves amounted to 311 billion ringgit, which was equivalent to US$95 billion at the time and is currently equivalent to US$100 billion. Informed sources said that Malaysia’s purchase of renminbi bonds is the latest issue, and it is reported that other Asian central banks also bought such assets at the same time or later, although so far it is not known which central banks are.

On August 17, the People's Bank of China published on its website the Circular on Offshore RMB Clearing Banks and other three categories of institutions using RMB to invest in interbank bond market pilots (Yinfa [2010] No. 217) to allow foreign central banks, The Hong Kong and Macao RMB clearing bank and the cross-border trade settlement of RMB and the participation of overseas banks in the three types of banking institutions participated in the market between the Bank of China and the Bank of China.

This means that China has opened up the domestic inter-bank bond market to foreign central banks - they own RMB through a series of bilateral currency swap agreements with a total amount of 800 billion yuan (US$120 billion).

These agreements are signed by China since 2008 with Argentina, Belarus, Hong Kong, Iceland, Indonesia, Malaysia, Singapore and South Korea. Commerzbanks such as HSBC and Citigroup, which have already settled through cross-border trade settlements, were also told last month that they would be able to invest in China's interbank bond market but have not yet received formal approval.

The decision to allow some central banks to invest in the domestic bond market is part of the Chinese government’s efforts to increase the internationalization of the renminbi, which will further expand the role of the renminbi. An official from a certain international institution who has close ties with central banks in Asia stated that Malaysia’s purchase of renminbi bonds is “a breakthrough”. However, he added: "This is still a small step. China's intention is not to disrupt the international monetary system but to gradually increase the status of the renminbi."

Offshore market construction is the key

Analysts believe that the increase and expansion will be the key to the next step in the internationalization of the renminbi. Of these, the construction of offshore markets has become a key point.

According to the statistics of the Central Bank, as of August 31, Beijing, Guangdong, and Shanghai had a total of RMB 98.65 billion settlement of cross-border trade RMB settlement services. According to sources, at present, this figure has exceeded 100 billion yuan, while the amount of financing is not more than several billion yuan, far from reaching the scale. After a certain scale of RMB cross-border settlement in the future, it will be very important to have a suitable offshore market for RMB. From the perspectives of economy, culture and politics, Hong Kong has become the first choice for the offshore RMB market. Although the central bank has pointed out that while supporting the establishment of the offshore RMB market in Hong Kong, it is also studying whether it can establish an offshore RMB market in Shanghai. However, many people in the industry stated that the current goal of Shanghai should also be to concentrate on improving existing facilities and making it more international. As a mature offshore market for RMB, Hong Kong is more convenient. "When the renminbi deposits reach 400 billion to 500 billion yuan, Hong Kong's offshore market for renminbi can be revitalized and has a small scale," said a senior Hong Kong financial person.