This sum makes 5% of Australian foreign reserves that were A$ 38.25 bln at the end of March. This deal is going to help China to internalize the yuan, especially in case of taking the lead of Australia by the other countries.
“This decision to invest in China is an important one. It reflects the broader economic relationship between China and Australia and our increasing financial ties”, the Reserve Bank of Australia Deputy Governor Philip Lowe said. At the end of March the central banks of these two countries signed a bilateral agreement on currency swap facility totaling A$ 30 bln.
Thanks to this deal, the list of the foreign currencies, which can be converted into the yuan, now consists not just of the U.S. dollar and the yen, but also of the Australian dollar. 45% of the Australian foreign reserves are allocated to U.S. and 45% to Europe. This step will allow Australia to diversify its reserves and increase the profit from investments, because the rate of the Chinese state bonds is higher than that of U.S. and Europe.
China has sought to broaden investment channels for renminbi holders as part of its efforts to internationalize its currency. Andrey Akopyan, the partner of the Caderus investment boutique specializing in China market, said that China is going to make the yuan a freely convertible currency by 2015. This agreement with Australia is a sort of a tactical ploy aimed to turn its national currency into the regional one. It means that all transactions in Asia are supposed to be carried out in the yuan. Perhaps, other countries will want to diversify their foreign reserves with the yuan. Chile, Japan, and Malaysia are now intending to hold renminbi assets.
