The internationalization of the Renminbi: African central banks included in RMB bond placement

The state-owned China Development Bank has arranged for 500 million yuan (US$78.7 million) of renminbi-denominated bonds issued in Hong Kong to be placed with central banks in Africa, representing another significant step in the internationalization of China’s currency, reports the Beijing-based Economic Observer.

On July 26, the China Development Bank issued 2.5 billion yuan (US$392.8 million) of securities in Hong Kong — known as “dim sum bonds” — comprising 1.5 billion yuan (US$235.9 million) of three-year bonds and 1 billion yuan (US$157.3 million) of 20-year bonds. One-third or 500 million yuan (US$78.6 million) of the three-year bonds will be placed with the central banks of African countries, said to include Nigeria and Tanzania. This marks the first time African central banks have participated in an offshore renminbi bond investment in primary markets.The remainder of the bonds will be offered to investors in Asia, Europe and the Middle East.

“The internationalization of the renminbi is inevitable, and Africa is a fertile soil and important front for this process, with 36 billion yuan (US$5.7 billion) in trade done in the Chinese currency already during 2011, said Jeremy Stevens, a South African economist based in Beijing. Stevens predicts that by 2015, 20% of all foreign currency reserve assets held by African central banks will be renminbi assets.

A spokesperson for the Beijing branch of South Africa’s Standard Bank, which acted as sole bookrunner for the African placement, said the deal is a reflection of China Development Bank’s performance and the confidence in the credit rating of African investors. African investors have been interested in the dim sum bond market for some time and have been keen to participate, she said. Bing Fan, the managing director of Standard Bank China, says the deal “bolsters two-way capital flows between China and Africa, which is exciting for both sides as until recently capital has mostly been flowing from China to Africa.” “The bond sale also marks an important step in the renminbi’s road to becoming a global reserve currency, which is key to the internationalization of the currency,” Bing said.

Meanwhile, in another first, Hong Kong banks have been legally allowed to set up accounts offering renminbi services for non-Hong Kong residents since August 1 this year. Zhao Xijun, a finance professor at Renmin University of China in Beijing, believes the move symbolizes yet another step in the internationalization of the renminbi. Hong Kong is a significant economy, and offering non-residents renminbi services will attract more businesses, investors and financial institutions to expand their renminbi operations in the territory, he said. Hu Xiaolian, the vice governor of China’s central bank, the People’s Bank of China, says renminbi cross-border trade settlements have grown from only four cities and 300 enterprises to become open to the entire country in just three years. From January to May, the growth of renminbi denominated cross-border transactions is 70% faster than the previous corresponding period, Hu said.

China Money Report