HONG KONG — Germany’s central bank has made the decision to include Chinese yuan to its currency reserve, following the same action by the European Central Bank, a board member at the bank revealed on Monday.
Speaking on a panel at the Asian Financial Forum in Hong Kong, Andreas Dombret of Deutsche Bundesbank said the move was prompted by the currency’s earlier inclusion into the International Monetary Fund’s basket of elite currencies with special drawing rights.
But he warned the current capital control measures imposed by Beijing to curb money outflows and a lack of transparency in the country’s financial regulatory system would impair foreign investors’ confidence in the newly-elevated currency.
In 2016, the renminbi officially joined the U.S. dollar, euro, Japanese yen and British pound as the fifth member of the IMF’s SDR basket. However, the usage of the Chinese currency in international payments was less than 2% by the end of 2017.
“The renminbi is used increasingly as part of central banks’ foreign-exchange reserves. For example, the European Central Bank included the RMB but also other European central banks did so,” Dombret said during a speech at the forum.
“And I can say today, the German central bank — Deutsche Bundesbank — has decided to include renminbi in our currency reserve,” he added.
Dombret did not reveal how much the bank plans to buy, but he later told Bloomberg that it was “not a major amount”.
He said the German bank had been talking with China’s central bank since last year, and that the decision had been prompted by the same action by other European counterparts.
In the first half of last year, the ECB completed an investment equivalent to 500 million euros of its foreign reserves in Chinese renminbi.
However, Dombret raised concerns about Beijing’s intensive regulatory interference, which he said would impede the internationalization of its currency. The shares of renminbi in global payments have fallen for two years in a row, according to data compiled by Bloomberg.
“The internationalization of renminbi has somewhat lost momentum recently,” he said. The lack of transparency of the currency’s exchange regime had already unsettled many foreign investors, and the introduction last May of “counter-cyclical adjustment factors” in its fixing system — a vehicle to prevent excessive one-way movement of the currency– had made the situation worse.
“Renminbi is much more international than in previous times,” he said. “However, for becoming a real international currency, it has to become much more flexible and existing capital control needs to be dismantled substantially in order to achieve this goal.”