China’s yuan liquidity reserve pool highlights efforts to loosen US dollar hegemony

China’s plan to establish a yuan liquidity reserve pool with the Bank for International Settlements (BIS) could help boost international use of the currency

The announcement highlights the effort China’s central bank has been making to put in place infrastructure that will help loosen the grip of dollar hegemony

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China is setting up a yuan liquidity reserve pool with the Bank for International Settlements. Photo: Shutterstock

Published: 9:00am, 28 Jun 2022Updated: 1:18pm, 28 Jun 2022

China’s plan to establish a yuan pooling scheme with the Bank for International Settlements (BIS), plus Indonesia, Malaysia, Hong Kong, Singapore and Chile could pave the way for the currency to play an anchoring role in the Asia-Pacific region, analysts said.

The plan comes amid heightened worry in Beijing about US dollar hegemony and as global investors search for safe harbours while the US embarks on monetary normalisation to tame high inflation.

The Renminbi Liquidity Arrangement, which could be used in periods of market volatility in the future, initially includes the People’s Bank of China (PBOC), the Bank Indonesia, the Central Bank of Malaysia, the Hong Kong Monetary Authority, the Monetary Authority of Singapore and the Central Bank of Chile.

Each participant will contribute a minimum of 15 billion yuan (US$2.2 billion) or the equivalent in US dollars, creating a reserve pool at the BIS, according to a statement from the Switzerland-based financial institution owned by central banks.

They will also have access to additional funding through a collateralised liquidity window, which allows participating central banks to make additional borrowing using their existing holdings as collateral.