Europe’s central bank gives Beijing the nod on the yuan with US$557 million conversion

In a first, the ECB included China’s currency in its reserve portfolio, 9 months after the International Monetary Fund granted it reserve currency status

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A China yuan note is seen in this illustration photo. Photo: Reuters

Published: 2:23pm, 16 Jun 2017Updated: 9:18pm, 17 Jun 2017

The European Central Bank has converted 500 million euro worth of US dollars (US$557 million) into Chinese yuan, marking the first time the central bank has included the Chinese currency in its reserve portfolio, nine months after the International Monetary Fund granted the yuan reserve currency status.

The move is symbolic of the central bank’s endorsement of the yuan’s role as a “reserve currency”, although Beijing has imposed rigid capital account controls to make the yuan less freely usable in past months.

A man is seen in front of a sheet of 5 euro notes at the opening of the new Central Bank of Ireland offices in Dublin, Ireland, earlier this spring. Photo: Reuters

The 0.7 per cent presence of Chinese currency in ECB’s reserve portfolio, much lower than the yuan’s 11 per cent share in the basket currency of Special Drawing Rights of the IMF, reflects the ECB’s caution about the yuan, also known as renminbi.

At the same time, the growing trade and investment flows between China and Europe, as well as Europe’s plan to develop “offshore” yuan markets in Frankfurt and Switzerland, have made the European central bank willing to test the waters in yuan holdings.

“It is one of a few developed economies to include yuan reserves…because of its trade and investment exposure to China,” said Xie Yaxuan, chief macro analyst of the China Merchants Securities in Shenzhen. “The proportion is not big, but there is still room to improve.”