China's central bank plans to issue 60 billion yuan ($8.2 billion) worth of bills in Hong Kong on Jan 15 — a sign of its determination to cement the city’s entrenched status as the world’s largest offshore yuan center and to boost the global reach of the Chinese currency.
According to a statement from the People’s Bank of China (PBOC) on Thursday, the bills will be issued with a maturity of six months, or 182 days.
The move aims to enrich yuan-investment products with high credit ratings in Hong Kong and to improve the yield curve of the yuan in the region, the central bank said.
Analysts said that issuing offshore yuan bills can tighten the yuan liquidity in the offshore market and stabilize the offshore exchange rate of the yuan.
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Becky Liu Jie, head of China macro strategy at Standard Chartered Bank in Hong Kong, said the issuance is set to be the largest on record, sending a strong and sustained policy signal to stabilize the yuan exchange rate and market expectations.
It also looks to meet the demand of foreign investors for high-quality assets, adding flesh to the bone of China’s vision to make its currency more international, said Wang Qing, chief macroeconomic analyst at Golden Credit Rating International.
The move has sent a clear policy signal of stabilizing the yuan exchange rate and market expectations, which will help reduce major fluctuations in the exchange rate, said Pang Ming, a researcher with the National Institution for Finance and Development.
By increasing the supply of offshore renminbi bonds, the central bank can also meet the demand of foreign investors for high-quality assets, said Zhou Maohua, a researcher at China Everbright Bank.
At the heart of the yuan’s push to become a global currency, Hong Kong has a role to play as the world’s largest offshore renminbi hub, processing nearly 75 percent of the global offshore renminbi settlement.
“A multilayer, diversified package of high-quality underlying assets stands as a backbone of the sustainable development of an offshore yuan market,” said Ying Jian, principal strategist at Hong Kong Financial Research Institute of Bank of China.
“The introduction of high-quality renminbi-denominated assets has what it takes to foster an ecosystem of renminbi usage in the making. This is where the central bank bill issuance could come in,” said Ying.
Since November 2018, the central bank has established a standard mechanism for issuing central bank bills in Hong Kong.
The PBOC continues to expand its monetary policy toolkit to get a better handle on liquidity in the onshore and offshore markets, amid mounting concerns over a stronger US dollar due to expected trade tensions and slower rate cuts from the US Federal Reserve, said Wang.
A broad range of measures in place includes cuts to the foreign exchange reserve ratio and reductions of interest rates on domestic dollar deposits.
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“Indeed, monitoring the ‘managed float’ system for offshore renminbi liquidity through the bill issuance and other tactics have become the regular policy options for China’s monetary regulators,” Wang said. “History tells us they are effective.”
Wang added that the yuan continues to remain stable and to strengthen against a basket of currencies — an indicator that reflects the effective exchange rate of the yuan, according to the China Foreign Exchange Trade System.
The offshore yuan gained 0.1 percent to 7.3450 per dollar on Thursday, following the announcement of central bank bill sales. In the onshore market, the currency was little changed at 7.3311, close to the weak end of its trading range at 7.3323 as defined by the day’s fixing.
Contact the writer at sophialuo@chinadailyhk.com
With Xinhua and Bloomberg inputs
