China’s Central Bank Backs Use of SDR’s for Domestic Debt

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One of PBOC’s senior-most officials has voiced strong support for the expand use of IMF’s Special Drawing Rights in several areas, including for the issuance of domestic debt.

Speaking at a forum on SDR last week, People’s Bank of China vice-governor Yi Gang said that China would continue to push for the increased use of SDR in three key areas following the IMF’s decision to incorporate the RMB into its basket of key currencies in October last year.

Yi said that PBOC backed the increased use of SDR-denominated debt within China, in the wake of successful issuance of SDR bonds domestically by the World Bank and Standard Chartered.

According to Yi the basic market infrastructure for SDR transactions is still incomplete, and despite the increasing number of individuals and companies making use of the currency alternative the lack of secondary market for SDR-denominated bonds is having adverse impact on liquidity and settlement as well as risk premiums.

Yi said that in future China would continue to push for the creation of SDR market infrastructure in order to overcome these hurdles.

Yi also said that PBOC welcomed the use of SDR’s by central banks around the world, and would be willing to provide currency for transfer purposes in order to facilitate the use of SDR as official reserves.

China already employs the SDR as unit of account for its  foreign reserves, balance of payments as well as international investment position in tandem with the US dollar and the Renminbi.

Yi Gang highlighted the importance of establishing an SDR for enhancing the ability of the IMF to help safeguard the international financial system by acting as a lender of last resort.