The People’s Bank of China’s (PBOC) easing of rules that restrict foreign central banks from purchasing Chinese sovereign bonds should spark a flood of purchases.
Jukka Pihlman, head of central banks and sovereign-wealth funds at Standard Chartered Bank, told the Wall Street Journal that Tuesday’s PBOC announcement is already creating excitement. He said his clients — central banks and sovereign-wealth funds — are excited about free access to China’s $6.1 trillion bond market.
Their demand for China bonds has long been robust, Mr. Pihlman told WSJ, but until now entering the world’s third-largest debt market has required a lengthy and cumbersome application process.
Pihlman said that the previous regimen could take “several months to over a year” to get what are called approval stamps.
The new “much easier” process requires central banks, sovereign-wealth funds and international financial institutions to only fill out a two-page registration form with the PBOC.
Pihlman told WSJ that he believes the free bond access will “spur a new wave of public-sector investment in China’s onshore market.”
The PBOC decided the bond purchase restrictions need to be lifted in order to receive recognition of the yuan as an official reserve currency from the International Monetary Fund later this year. Such a move would put the yuan on par with the US dollar, the Japanese yen, the euro and the pound sterling.
Standard Chartered estimates that more than 60 central banks have invested in the yuan, including deposits and bonds, reported WSJ. As of the end of April, foreign central banks held about $107.5 billion of their official reserves in yuan, according to PBOC data.