context: RMB internationalisation has moved further in settlement and financing than in reserves. The harder task now is to make foreign official institutions hold RMB assets durably. That requires more safe RMB assets, and funding plumbing around them. The new repo tool borrows the logic of the US Federal Reserve’s FIMA facility: official holders should be able to raise liquidity against bonds instead of selling them under stress.
PBoC (People’s Bank of China) announced that it will launch a repo tool for foreign official institutions, letting them raise short-term RMB against high-grade PRC bonds without selling their holdings.
The facility
- covers foreign central banks and monetary authorities, international financial organisations and sovereign wealth funds
- accepts PRC government bonds, central bank bills and policy-bank bonds approved by PBoC
- allows pledged repo and outright sale-and-repurchase
- runs at seven-day, one-month and three-month tenors
- prices repo off the 7-day reverse repo rate plus a spread
The facility adds a missing liquidity layer to RMB internationalisation, says Liu Yu 刘郁 Industrial Securities chief economist. Liu notes that the tool gives RMB internationalisation a market-rate channel. By letting foreign official institutions raise RMB from PBoC through bond repos, it links PRC government bond yields more closely with the 7-day reverse repo rate and helps transmit policy rates into offshore RMB markets.
The reserve-currency signal is explicit. The tool improves RMB liquidity provision for foreign institutions and helps push RMB use from trade settlement towards reserve allocation, says Tian Xuan 田轩 Peking University Guanghua School of Management dean and Boya Distinguished Professor.