RMB fund planned to aid Latin America

April 29th, 2011 | China Daily

The Export-Import Bank of China (China Eximbank), a major policy bank, will formally launch a yuan-denominated sovereign fund before the end of this year to invest in Latin America, a senior executive said on Thursday.

The fund, which amounts to $1 billion, will be mainly put into infrastructure construction in collaboration with the Inter-American Development Bank (IDB), Liu Liange, vice-president of China Eximbank, told China Daily.

In late March, the two banks signed a letter of intent to establish an infrastructure investment mechanism to finance public and private sector projects across the region, with the yuan as one of the currencies to undertake the investments.

“Investment in the infrastructure sector fits well with the developmental needs of Latin America,” said Liu, adding that he expected the investments conducted in yuan could help companies hedge risks brought by currency fluctuations.

“Urbanization is a common issue lying ahead for both China and Latin American countries. Cooperative opportunities are increasing because Latin American countries are accelerating infrastructure construction,” said Li Yang, deputy head of the Chinese Academy of Social Sciences.

According to a United Nations report, China had invested nearly $41.2 billion in Latin America by the end of 2009, about 15 percent of its total direct investment overseas. From 2003 to 2009, foreign direct investment from China to Latin America totaled $24 billion.

The establishment of the fund will help raise the yuan’s profile in international trade and investment while improving the relationship between China and Latin America and facilitate China’s import of raw materials from the region, said Wang Jun, an economist at the China Center for International Economic Exchanges.

China and some other emerging economies have called for reform of the international monetary system, increasing the role of the yuan, putting it into the Special Drawing Right, reserves held by the International Monetary Fund.

However, leaders of some countries have suggested preconditions such as the “convertibility and flexibility of the currencies and relative independence of the central banks” for the yuan’s inclusion in the SDR basket.

The yuan, has become more important in China’s bilateral trade with countries in Latin America. In 2009, Argentina signed a 70 billion yuan ($10.76 billion) currency swap agreement, while Brazil conveyed willingness to trade with China using their own currencies rather than the US dollar. Meanwhile, this year, Peru became the first Latin American country to open a yuan-denominated trade settlement account.

China’s central bank will continue to promote offshore yuan trade settlements to promote the currency’s use in the global market, while paying more attention to extending cross-border yuan-based investment, Li Bo, director of the Monetary Policy Bureau of the People’s Bank of China, said.

By Wang Xiaotian and Chen Jia

Category: Central & South America, Finance