The Market Monitor Minding the Nation's Business
By Jerry Maglunog
Banks have zeroed in on yuan buying to boost their foreign- exchange earnings in time for the scheduled inclusion of the currency in the basket of reserves of members of the International Monetary Fund called special drawing rights (SDR).
Some sources at the banking community said many banks are now carefully thinking of offering yuan deposits to boost their foreign exchange earnings. At present, there are eight unibanks that offer deposits in yuan.
“Since foreign-currency trading is one of the sources of income of banks, definitely they will look at it very carefully. China is so powerful now, no one can deny that,” said a top official of the Bankers’ Association of the Philippines (BAP).
However, a source from Philippine Bank of Communications said storage of yuan is expensive because unlike dollars, it can be shipped anytime. “Waiting period costs a lot because the market is not yet that big,” said a treasury official of the bank.
Yuan is currently pegged at P7.23 in banks and leading money changers. It is expected to rise further against the peso as the Chinese central bank is devaluing it in preparation for its entry to the SDR basket in October 2016, observers said.
IMF Managing Director Christine Lagarde announced in December last year that the yuan will initially have 10-percent weight, taking a cut from euro (6.5 percent) and pound (3.2 percent). The official didn’t explain why no cut was taken from dollars.
Former National Treasurer Leonor Briones hinted that the United States’s huge debt from China is one of the reasons why the Chinese currency is now the fifth unit of the SDR. It will be the first time that units of SDR will be back to five since becoming four in 2002 after the French franc and deutsche mark were converted into euro.
“The debt is so huge that’s why a war over incursion in several Philippine territories over West Philippine Sea is far-fetched,” Briones said in a chance interview at the Kapihan sa Manila Hotel sponsored by Samahang Plaridel.
A look at several money changers in Makati and Pasay Cities indicate the growing interest in Chinese currency which is now widely traded.
Starting in late 2016, the yuan will make up about 11 percent of the basket that defines the value of IMF’s SDR, a type of reserve asset that makes up a small but symbolic portion of overall currency reserves.
The elevation of the renminbi means that other currencies in the basket will be losing some of their share, notably the euro, which will lose 6.5 percentage points, and the pound sterling, which will lose 3.2 percentage points. Aside from the US dollar, the weight assignment on the Japanese yen wasn’t changed.
The value of the SDR is based on a basket of key international currencies reviewed by IMF every five years.
The weights assigned to each currency in the SDR basket are adjusted to take into account their current prominence in terms of international trade and national foreign exchange reserves.
The yuan or renminbi is the official currency of China. The name literally means “people’s currency.” The yuan is the basic unit of the renminbi, but is also used to refer to the Chinese currency generally, especially in international contexts.