As Petro-Yuan Looms, Bundesbank Adds Renminbi to Currency Reserves

The comments above & below is an edited and abridged synopsis of an article by Tyler Durden

Days after China’s threat to slow/stop buying US Treasuries, and days before the launch of China’s petro-yuan futures contract, Germany’s central bank said it would include China’s renminbi in its reserves.

Hamburg: sculpture near office building of Deutsche Bundesbank in Hamburg city. Hamburg is the second largest city of Germany, with population of over 1,7 million people

Andreas Dombret of Deutsche Bundesbank’s executive board said: “The RMB is used increasingly as part of central banks’ foreign exchange reserves; for example, the European Central Bank included the RMB [as a reserve currency].”

The inclusion in the German central bank’s reserves basket underscored China’s increasing prominence in the global financial landscape, and reflected policies aimed at making the currency more freely tradable internationally.

“The notable development from the European point of view over the past few years has been the growing international role of the RMB in global financial markets,” said Mr. Dombret.

The yuan strengthened on the news, pushing to its strongest in over 2 years.

While the Bundesbank wants to integrate the yuan into its foreign exchange reserves, the Banque de France is already using it as a currency of diversification.

The US dollar has been volatile against a broad basket of its largest trading partners over the last 18 months, while the renminbi has been stable (despite volatility against the dollar).

The People’s Bank of China dropped a mechanism it recently created to support the renminbi and safeguard it against capital flight, a sign of rising confidence in the currency. Mr. Dombret said the move was “something which we welcome very much.”