Reserve Bank to buy Chinese bonds for reserves

 

Photo: The RBA will hold some of its currency reserves in renminbi, via Chinese government bonds. (ABC/Reuters)

Australia's central bank is gearing up to invest a slice of its foreign currency reserves in Chinese government bonds.

Speaking in Shanghai, RBA deputy Governor Philip Lowe said the bank has sought and received approval to hold about 5 per cent of its $38 billion foreign currency assets in China.
"This decision by the RBA represents the first time that the RBA will have invested directly in a sovereign bond market of an Asian country other than Japan," observed the bank's deputy governor Philip Lowe.
The unprecedented move is part of a bigger plan to strengthen ties with Australia's biggest trading partner, and follows the recent launch of direct trading between the Australian dollar and China's renminbi announced by Prime Minister Julia Gillard around a fortnight ago.
Dr Lowe says the People's Bank of China has approved an initial investment quota, and the two central banks are working through the necessary agreements before the investment is actually made.
"This decision to invest in China is an important one. It reflects the broader economic relationship between China and Australia and our increasing financial ties," he explained.
"It provides greater diversification of our investments and will help with our understanding of the Chinese financial markets."