European Central Banks Propel Yuan’s Global Drive

The Chinese government’s campaign to internationalize the country’s currency has been gaining momentum as several European central banks have decided to add the yuan to their foreign exchange reserves.

Earlier this week, the Bank of France revealed that the yuan already accounts for a small portion of its foreign exchange reserves, which were worth 146.8 billion euros ($179.4 billion) in 2017. The French central bank made the announcement several hours after Andreas Dombret, a board member of Germany’s central bank, said at a forum in Hong Kong that the German bank had decided to include the yuan in its foreign exchange reserves last year.

In June, the European Central Bank (ECB) invested 500 million euros worth of its foreign exchange reserves into the yuan in the first half of 2017, according to a statement from the ECB.

The yuan made up about 1% of the ECB’s foreign exchange reserves, said Benoit Coeure, an ECB executive board member. By comparison, the U.S. dollar accounted for about 83% of the reserves at the end of 2016.

Dombret said the German central bank’s decision to make the yuan part of its reserves, which is still in the planning stage, was based in part on the ECB’s investment and the IMF’s inclusion of the Chinese currency in its Special Drawing Rights (SDR) currency basket in 2016.

After the endorsement of the French and German central banks, several other European central banks have expressed interest in the yuan. On Tuesday, the Bank of Spain said it was considering adding the currency to its foreign exchange reserves, and the Slovak central bank said it had already bought yuan, though it did not disclose the amount.

Coeure said the ECB’s investment reflects an acknowledgement of the importance of yuan in the global market and will serve as the first step for the ECB to better understand the Chinese currency and foreign exchange market.

“But the Chinese central bank tends to be conservative, so it will be a long process,” he added.

Contact reporter Pan Che (chepan@caixin.com)