RBA Says Yuan IMF Win Won't Cannibalize Aussie in World Reserves

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  • Debelle says Aussie not being held as substitute for yuan
  • No evidence of `behavioral change' by funds holding Aussie

Australia’s central bank said its currency’s place as a global store of value will be safe after the yuan enters International Monetary Fund reserves.

The Aussie isn’t being held as a substitute for the yuan and the renminbi’s inclusion won’t hurt flows into Australian debt “any time soon,” Guy Debelle, assistant governor at the Reserve Bank of Australia, said on Wednesday at the Bloomberg Summit in Sydney. The local dollar makes up 1.9 percent of the $6.7 trillion in the reserves of global managers who disclose details on their holdings. Debelle said the move into the Aussie was a way of shifting away from Group of Three currencies -- the U.S. dollar, the euro and
the yen.

“I think people are holding Aussie for other reasons in their portfolio, not as a sort of renminbi substitute,” Debelle said. “It’s a diversification strategy away from basically, I would say, the G-3 in terms of reserves. I don’t see the renminbi as sort of cannibalizing that demand.” 

While the Aussie has dropped about 30 percent over the past three years, its share of reserves has climbed from 1.5 percent at the end of 2012 when the IMF began to release such data. Managers have been drawn to the nation’s AAA sovereign rating, liquid currency and increasingly deep government bond market. Central banks keen to hold the yuan have been able to do so for some time, with the RBA allocating 5 percent to China’s currency, Debelle said.

Offshore Investors

Offshore investors held about 65 percent of the A$410 billion ($291 billion) in outstanding Australian government securities in June, official data show. China probably controls as much as 80 percent of the A$86 billion in Australian sovereign debt in the hands of Asian emerging-market currency managers, JPMorgan Chase & Co. estimated in a September research note.

The Aussie fetched 71.11 U.S. cents as of 9 a.m. in Sydney Thursday, down 13 percent this year and poised for a third annual decline. The nation’s 10-year benchmark bond yielded 2.90 percent or 63 basis points more than similar debt in the U.S.

The IMF signaled it will include the yuan as the fifth currency in its Special Drawing Rights basket this month, with a vote on the issue due Nov. 30. Standard Chartered Plc estimates up to $1.1 trillion will enter the nation in the next five years due to the endorsement. Banks including Credit Suisse Group AG, BNP Paribas SA and Mizuho Bank Ltd. have said that the Aussie dollar may be one casualty of diversification into the yuan.

“I wouldn’t be holding my breath for that sort of change to occur,” Debelle said. “If you look at the reserve managers who hold Aussie in their portfolio, we certainly have seen no evidence of any behavioral change.”

Australia counts China as its biggest trading partner, with the Asian nation buying about a third of its merchandise exports in 2014. That’s strongly linked the fortunes of Australia’s economy and markets to China. It’s also led some to speculate that the Aussie has been held as a proxy for the less-liquid and not freely floated yuan.

The RBA said in 2013 that it planned to invest about 5 percent of its foreign currency reserves in China, with Deputy Governor Philip Lowe saying it would be the first time the central bank invested directly in a sovereign bond market of an Asian nation other than Japan.

An IMF report in August that included an examination of the international use of the yuan showed the Chinese currency accounted for 1.1 percent of official foreign-currency assets including reserves in 2014, compared with 2.1 percent for the Aussie.

“For sovereign wealth funds or central bank reserve managers, like ourselves, we’ve had access to the renminbi for a while now,” Debelle said at the summit. “Some of the announcements the Chinese have made, particularly over the last couple of months, have increased the liquidity around those reserve holdings more than was the case in the past. But by and large, if you wanted to hold renminbi you could and people have.”