BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 1/2016:
Can the Chinese bond market facilitate a globalizing renminbi?
Guonan Ma ()
and Wang Yao ()
Abstract: A global renminbi needs to be backed by a large, deep and
liquid renminbi bond market with a world-class Chinese government bond
(CGB) market as its core. China’s CGB market is the seventh largest in the
world while sitting alongside a huge but non-tradable and captive central
bank liability in the form of required reserves. By transforming the
non-tradable central bank liabilities into homogeneous and tradable CGBs
through halving the high Chinese reserve requirements, the size of the CGB
market can easily double. This would help over-come some market impediments
and elevate the CGBs to a top three government bond market globally,
boosting market liquidity while trimming distortions to the banking system.
With a foreign ownership similar to that of the JGBs, CGBs held by foreign
investors may increase ten-fold by 2020, approaching 5 percent of the 2014
global foreign reserves and facilitating a potential global renminbi,
especially in the wake of the renminbi’s inclusion into the basket of the
IMF Special Drawing Rights.
Keywords: bond market; government bond market; renminbi internationalization; (follow links to similar papers)
JEL-Codes: E42; E44; E58; F02; G10; H63; (follow links to similar papers)
30 pages, February 6, 2016
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