DALIAN • China will open its domestic foreign exchange market to overseas central banks, making it easier for other nations to hold yuan assets as Asia's biggest economy pushes for the currency to win reserve status at the International Monetary Fund (IMF).
China will keep the yuan stable at a reasonable, equilibrium level, Premier Li Keqiang said while announcing the easing of controls in a speech at a World Economic Forum (WEF) meeting yesterday.
The nation does not want a currency war, he said, after the People's Bank of China (PBOC) shook up global markets with a devaluation on Aug 11.
Overseas monetary authorities have already been granted access to China's interbank bond market.
"The participation of foreign central banks will make the onshore yuan's exchange rate more globally recognised," said Mr Banny Lam, co-head of research at Agricultural Bank of China International Securities in Hong Kong.
"Allowing direct access gives the central banks more flexibility and control over costs, compared with going through local banks for trades," he added.
The decision will help further China's push for the yuan to join the dollar, euro, yen and pound in the IMF's Special Drawing Rights (SDR) basket of reserve currencies.
A key indicator used to determine qualification is a currency's share of official reserves, and the yuan ranked seventh last year, behind the four SDR members as well as the Australian and Canadian dollars, according to the IMF.
The Chinese currency's share was 1.1 per cent, compared with 63.7 per cent for the US dollar.
More than 60 global central banks and sovereign wealth funds have invested in yuan-denominated assets, with combined holdings of US$70 billion (S$100 billion) to US$120 billion, Standard Chartered estimated in a May report.
"Not long ago, we allowed foreign central banks to participate in the interbank bond market," Mr Li said at the WEF meeting. "The next step is to allow foreign central banks to directly participate in the interbank foreign exchange market. Before the end of this year, we will complete the cross-border yuan payment system that facilitates the development of the offshore yuan market."
The first phase of the China International Payment System will begin in Shanghai to handle deals in Asia, Oceania and Europe, the PBOC said in a June statement.
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