Malaysia buys China bonds in boost for renminbi

Malaysia’s central bank has bought renminbi-denominated bonds for its reserves, a report said yesterday, boosting Beijing’s ambitions to internationalise its currency.

The Financial Times did not specify the size of the investment and the Malaysian central bank declined to comment on the issue, in line with its policy of not discussing the management of its $95 billion in reserves.

But the paper said the transaction had taken place recently and “was thought to have been accompanied or followed by purchases by other Asian central banks, although none of these has yet been identified.”

China’s move in August to allow some central banks to invest in the domestic bond market was part of its push to promote the renminbi, or yuan, as a long-term rival to the US dollar, the business daily said.

Andrew Colquhoun, head of sovereign ratings Asia Pacific at Fitch Ratings, said it was not clear how large the Bank Negara transaction was but he would be “surprised if it was very large”.

“As China’s an important trade partner for Malaysia, it makes sense in terms of external liquidity management. But I expect it was also partly political,” he told AFP.

“We’re moving back into the regular six-monthly period when China’s currency management becomes politically sensitive, with the US congressional report on currency management, so I suspect it may well be something to do with that.” Malaysia’s move represents a landmark for China’s ambitions for the renminbi – not yet a fully convertible currency – but Colquhoun said that while other countries will likely follow suit, purchases will probably be modest.

“We think it’s likely the dollar will remain the global pre-eminent reserve currency. We think China remains quite cautious about the possible consequences of opening up its capital markets cross-border.”