De-Dollarization or More Clarity: Why Is PBoC Reporting Reserves in SDR?

An article in the Economic Observe airs several viewpoints on the PBoC's decision to begin reporting foreign exchange reserves in SDR.

EO: 三月外储增了还是减了？

Xie Yaxuan think, not only can the dollar-denominated, from dependence on a single currency. Exchange rate from the IMF website in March USD / SDR = 0. 709814, February 0.723948. The yuan central parity peg to the dollar from a single reference to "a basket of currencies", weaken the impact of the US dollar against the RMB exchange rate and foreign exchange reserves.

The logic is that, SDR-denominated more objective look at changes in central bank foreign exchange reserves. March foreign exchange reserves in US dollars is +103 billion US dollars, if the SDR-denominated value of -378 one hundred million SDR. Diversified currency structure of foreign exchange reserves, the central bank official reserves contain the factors of exchange rate changes, denominated in a different unit pricing, the results are not the same. If the only result of dollar-denominated term, China may come to the net cross-border capital flows conclusions. "The central bank is expected in March -1000 billion yuan foreign exchange, but the situation continued to improve cross-border capital outflow is not over."

In Chen Shiyuan opinion, with the RMB will soon join SDR, SDR international representation and stability will be strengthened in the future will play a more important international reserve and financial system, can move in the international monetary developments. The central bank to promote SDR, in fact, is a win-win --SDR importance of strengthening, containing RMB will benefit, will help promote the internationalization of the RMB and enter the national reserves. Specifically, the central bank with the SDR-denominated foreign exchange reserves, can play a demonstration effect, in accordance with the composition of SDR allocation of foreign exchange reserves, can be more stable, to avoid the single currency exchange rate risk. "This rumor behavior and issuing SDR bonds and earlier before the RMB effective exchange rate of the SDR basket, are consistent." "This may well be a bold attempt." Senior analyst of China Merchants Bank Asset Management, said Liu Dongliang. He believes that this is China "to promote de-dollarization of the center", while strengthening SDR influence and status of initiatives, in theory, can indirectly promote the internationalization of the RMB.

In fact, SDR rather limited direct impact on cash flow, because whether it is in actual transactions or on the reference configuration as an international investment issues, SDR are not have its uses. IMF SDR allocation is the essence of unconditional and no-cost credit to its members, SDR is essentially a credit assets.

According to Xie Yaxuan words, in practice, the actual trading SDR generated is not much, only SDR book assets, means that the yuan join the SDR does not allow countries to force RMB reserves increase, adding SDR is not able to bring direct economic benefit. RMB is actually added SDR as an international reserve currency pave the way for international recognition, the RMB to build confidence and credibility; more realistic sense, it is hoped that such confidence allows countries renminbi as a reserve asset holdings, thereby China to increase the financial allocation of assets for domestic bring incremental funding. In particular, the introduction of funds to domestic interbank bond market. Balance the foreign exchange market can not rely strictly limit capital outflows, but to use effluent flows into a balanced manner. "In the longer term, China aims to promote the internationalization of the RMB, the reform of the existing international monetary system."

Almost, the Xie Yaxuan believe in SDR terms, in line with the central bank to further liberalize the domestic inter-bank bond market to foreign investors in the general direction. The central bank governor Zhou Xiaochuan has said it is actively studying the issue SDR-denominated bonds in China. By counter-cyclical macro-prudential policy and strictly control the impact of cross-border capital outflows, the RMB internationalization process has slowed down, but it is still a long-term goal of the central bank.

...Contrast variation value of dollar-denominated foreign reserves and SDR-denominated, Chen Shiyuan found that if the appreciation of the euro, the dollar-denominated rises; but the appreciation of the euro, SDR will depreciate against the dollar, so the SDR valuation will offset some of the impact. "If the future of the unexpected strength of the dollar, dollar-denominated foreign reserve subject to exchange rate fluctuations and decline, but at sdr-denominated foreign exchange reserves, but would be more stable in this regard, the reference to the SDR can better stabilize market confidence." Said Chen Shiyuan .