Australia’s Central Bank To Invest Foreign Currency Reserves In China
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Australia’s central bank, the Reserve Bank of Australia (RBA), will invest up to 5 percent of its foreign currency assets in Chinese government bonds, announced its Deputy Governor Philip Lowe on Wednesday, marking a new milestone in the economic relationship between the two APEC countries.
Australia’s central bank, the Reserve Bank of Australia (RBA), will invest up to 5 percent of its foreign currency assets in Chinese government bonds, announced its Deputy Governor Philip Lowe on Wednesday, marking a new milestone in the economic relationship between the two APEC countries.
Speaking to a business audience in Shanghai, Lowe revealed that the RBA had come to an agreement with its Chinese counterpart, the People’s Bank of China (PBOC), on an initial $1.9 billion quota, making it the first time the RBA invested directly in a sovereign bond market of an Asian country outside Japan.
Additionally, Lowe said a $30 billion currency swap agreement that was established last year, would soon be available to all authorised deposit-taking institutions in Australia; and if activated, the RBA would charge banks 25 basis points over the Shanghai Interbank Offered Rate (SHIBOR) to borrow yuan.
“This decision to invest in China is an important one. It reflects the broader economic relationship between China and Australia and our increasing financial ties”, said Lowe, as cited by the Financial Times.
[quote]“It provides greater diversification of our investments and will help with our understanding of the Chinese financial markets,” he added.[/quote]Earlier this month, Australia also became only the third country to establish a direct currency-trading link with China, after the U.S. and Japan. In addition, China is Australia’s top export destination, and its biggest source of imports.
According to Bloomberg, Chinese investment in Australia has risen by more than five-fold since 2006, reaching about A$20 billion at the end of 2011. The bulk of the investment has gone into Australia’s commodities market, which has spurred the economy over the past five years.
Related: China Inks $31 Billion Currency Swap Deal With Australia
Related: Australia’s Resource Boom: From Blessing To Curse?
Related: Australia Set World Record with 21 Years of Continued Economic Growth
In a statement to AAP, Australia’s Federal Treasurer Wayne Swan reiterated that the relationship would boost Australia’s growth prospects
[quote]”Strong financial linkages between our economies will ensure that Australia is even better positioned to benefit from the shift in global economic growth towards Asia,” he said, adding that the move built on the recently announced strategic partnership between the two countries, which will see their leaders meet annually.[/quote]
