World Bank to issue SDR bonds in China

15 Aug 16

The World Bank is the first entity to receive approval to issue bonds backed by the International Monetary Fund’s special drawing rights reserve asset in China.

The first issue of its bond programme will mark the launch of the SDR-denominated market in the world’s second-largest economy, in line with the G20 goal of revitalising the market for such bonds and aiding China’s push to internationalise the renminbi.

China is due to be included in the SDR currency basket from October, alongside the dollar, euro, pound and yen, bringing the country in to the fold of the international monetary system.

The bonds, settled in renminbi but backed by the fund’s SDR, will enhance domestic investors’ exposure to foreign currency and, for China, is a key way to weaken the position of the dollar as the global economy’s main currency.

World Bank president Jim Yong Kim said the approval is a “landmark development” for China and the SDR, which will also open up new opportunities for international investors seeking high quality investment products in the country.

The size of the bank’s issuance programme will be equal to around $2.8bn. The timing of issue and individual bond terms will be dependent on market conditions at the time.

Arunma Oteh, World Bank vice president and treasurer, added that the programme shows the “vital role” the bank plays in opening new markets and developing local capital markets.

China’s interbank bond market is one of the largest in the world, but only about 2% of this is held by foreign investors who have had limited access. In February, the People’s Bank of China announced a loosening of controls in order to open up government-issued bonds to foreign investors.

The Chinese ministry of finance also announced in May that it would issue the first ever sovereign renminbi bond outside of China on the London stock market, in another attempt to internationalise the currency.

The move was meant to test demand for Chinese assets after the nation shocked the markets with the surprise depreciation of its currency a year earlier.

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