Hold RMB as Foreign Exchange Reserve?

Chile Central Bank is interest in brining RMB as their foreign exchange reserve.

Jose De Gregorio, Chile Central Bank Governor said that, Chile Currency Authority is studying to hold RMB as their Foreign exchange reserve. Though it is not easy to do so, Chile has started to study the possibility of investing RMB denominated asset via Singapore.

Extend foreign exchange reserve diversification to RMB is not an easy thing. RMB can not be exchanged completely and freely fluctuate like US Dollar (US Dollar is still the global leading reserve currency). That means Chinese government securities which are suitable for the overseas central banks are still not enough.

Alberto Ramos, an economist of Goldman Sachs, said that, the risk of holding RMB as foreign exchange reserve is different from Holding US Dollar. He pointed that US Dollar has fluctuation risk, while RMB are subject to the will of Chinese government.

Since June of 2010 when Chinese Central Bank stop the exchange rate policy of RMB firmly following US Dollar, the rate of exchanging RMB to US Dollar has appreciated by 6.7%.

Worries about American long-term financial condition are increasing, which are shaking the Safe Harbor Status of US Dollar. In the meantime, worries about the spreading of European sovereign debt crisis also shake the status of EUR. All these bring opportunity for the access of emerging-market currencies (Though it is still in the very early stage).

Furthermore, considering the importance of China-Chile bilateral trade, increasing Chinese RMB reverse is reasonable. By July of 2011, the proportion of exporting to China and importing from China is respectively 20% and 16% of Chile total export volume and import volume. However, Ramos from Goldman Sachs said, copper export to China takes up the majority of Chile export volume; however, just as the other staple commodities, copper are traded in dollar.

Chile is the biggest copper producing country in the world, where the copper ore crusher, such as cone crusher, impact crusher, jaw crusher are widely needed, while China is the biggest copper consuming country.

Hence, Cristian Donoso, principal of Chile local foreign exchange, said that, although there is restriction for Chile Central Bank to hold large amount of RMB as their foreign exchange reserve, in the long term it is reasonable, because with the sustained development of Chinese economy, RMB will be appreciated.