China hails ECB debate on yuan as a reserve currency

Washington

POLICYMAKERS from Beijing to Kuala Lumpur welcomed plans by the European Central Bank (ECB) to consider adding the yuan to its foreign-currency reserves.

The internationalisation of China's currency emerged as a subject at the annual meeting of finance ministers and central bank governors in Washington after Bloomberg News reported that the ECB would discuss whether to begin laying the groundwork to buy yuan.

Such a measure would mark a major step for the importance of the currency, also known as the renminbi.

Asked about the ECB's plans, People's Bank of China (PBOC) governor Zhou Xiaochuan said that "it's good that more countries are willing to adopt it as a reserve currency as our economy grows".

"Of course it means some homework to do for us, including to reduce administrative control on our financial market and make it more market-oriented, and to gradually make the yuan a convertible currency," he said.

While China is the world's second-largest national economy, the yuan currently isn't ranked among the most-held foreign reserve assets, according to data from the International Monetary Fund (IMF). The US dollar leads at 61 per cent of holdings.

Should ECB officials eventually decide to buy the currency, initial purchases would be small and might start in a year at the earliest, said a person who asked not to be named because the discussions aren't public.

The central bank's 24-member Governing Council will consider the move when gathering in Frankfurt for their Oct 15 mid-month meeting.

Malaysia's governor Zeti Akhtar Aziz said in Washington that the yuan had been part of the central bank's reserves since 2009, adding that the ECB's considerations are a "positive development".

The ECB's push comes against a backdrop of global central bank diplomacy to ease the way for China's currency, after a series of swap agreements on emergency liquidity.

Officials will review the IMF's basket of so-called Special Drawing Rights, which doesn't currently include the yuan, by 2015, according to the Fund's website.

China hopes its currency can join, Li Bo, head of the PBOC's second monetary policy department, said in Hong Kong in March. The basket currently includes the dollar, euro, pound and yen.

"It makes sense to talk about preparing for a greater international role of the renminbi given that China is our third-largest trading partner," ECB president Mario Draghi said on Saturday. BLOOMBERG