PBOC Launches Tool to Boost Yuan Use by Other Central Banks

China announced new money-market measures to broaden the use of its currency among entities like foreign central banks and sovereign wealth funds.

The People’s Bank of China will use the Foreign and International Monetary Authorities repurchase agreement facility to provide yuan liquidity to overseas central bank-type institutions, according to a on its website. Such a facility would allow users post their Chinese government bonds and other PBOC-approved securities holdings as collateral in exchange for yuan.

Loans would be available for terms of seven days, one- and three months, according to the statement. The Federal Reserve has a facility that accepts Treasuries holdings for dollars.

The new tool is similar to the Fed’s FIMA facility, according to Zhaopeng Xing , senior strategist at Australia & New Zealand Banking Group.

“It will play two roles,” he said. “One is for payment crisis and the other is for liquidity management.”

China has grown in its push to expand the yuan’s role in the global monetary system, seizing a window last year of increasing debate about the dollar’s global position. The country’s latest five-year plan vowed to promote yuan internationalization and President Xi Jinping has spoken of the prospect of building a “ .”

In recent months, there have been increasing signs of progress, as grows ever more popular with foreign borrowers. China’s cross-border yuan payment system saw a , while global central bank usage of PBOC hit a two-year high in the first quarter. Talk about the prospect for a also gained momentum after the Iran war.

China’s central bank also a potential shift in its interest rate framework with a focus on the overnight policy rate, a move that would bring it more in line with global peers.

“The series of announcement on CNH and onshore yuan repo facilities are positive and moving toward the direction of yuan internationalization,” said Wee Khoon Chong , Asia Pacific market strategist at BNY. “This, along with the relative stability of Chinese financial assets across foreign exchange, equities and bonds are likely to see further inflow momentum into China.”

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