Yuan Could Make Up 10 Percent of Global Reserves, Lembong Says

  • Building yuan reserves `sheer necessity' for China's partners
  • Indonesia partnering with Australia on beef an `opportunity'

China’s trading partners’ need to accumulate yuan could lead the Chinese currency to account for 10 percent of global reserves within five years, said Indonesian Trade Minister Tom Lembong.

With China increasingly dominating world commerce and emerging as the biggest trading partner to dozens of nations, even countries with political differences with China will face an economic imperative to build yuan reserves, he said. China is Indonesia’s biggest trading partner with $55 billion in bilateral commerce last year.

"I think in this case it’s driven by sheer necessity," Lembong said in remarks to journalists in Manila at a meeting of Asia-Pacific Economic Cooperation officials.

The International Monetary Fund this month said in a paper that the currency met conditions for inclusion in the Special Drawing Rights reserve-currency basket. The recommendation makes IMF approval to designate the yuan as one of the world’s key reserve currencies all but certain. Approval probably will make more countries comfortable including the currency in their foreign-exchange holdings, while boosting Chinese President Xi Jinping’s drive to open up the world’s second-biggest economy.

For Indonesia, exchanging dollars to make payments in yuan puts downward pressure on the rupiah, Lembong said. He would like to see Indonesia eventually using yuan to pay for about a third of its imports from China, currently valued at about $30 billion.

Lembong also sees opportunities to boost exports to China and said that Indonesia’s competitive advantage in slaughtering and packaging meat could help it tap China’s growing demand for protein.

Imports of live cattle from Australia should be back to normal this year after the Indonesian government reversed a cut in quotas, he said. Indonesia teaming up with Australia and New Zealand to process their meat would give the three a foot up in catering to the surging demand for beef in China and other parts of Asia, he said.

"How we manage this booming demand for protein in China, Indochina, the Philippines could be a threat to Indonesia or it could be a huge opportunity,” Lembong said. “If Indonesia, Australia and New Zealand should partner together to try to service this export opportunity, that could be huge."

Indonesia is Australia’s top live cattle market, buying 56 percent of exports last year. The combined value of beef, offal and live cattle exports to Indonesia was A$883 million ($626 million) in 2014, according to industry group Meat & Livestock Australia’s website.

Before it's here, it's on the Bloomberg Terminal.