The role of the Chinese currency renminbi in safeguarding global financial stability is expected to rise steadily as the world's first multilateral renminbi pooling program bears testimony to the currency's potential in easing liquidity woes in emerging market economies, experts said.
Sensible future steps for China to help alleviate potential financial strain in other EM economies include expanding currency swaps and participating in debt restructuring schemes, they said.
Their comments came at a time when the global financial landscape has turned more fragile as monetary tightening led by the United States has raised the cost for many EM economies to service external debt and exposed them to higher risks of debt crisis and liquidity woes.
To help participating economies deal with potential periods of market volatility, the Bank for International Settlements announced last month it will develop a Renminbi Liquidity Arrangement－a yuan reserve pool from which participating central banks can obtain the renminbi when needed.
Marking the first multilateral renminbi pooling scheme, the arrangement features participation of EM economies and can assist them in dealing with potential financial strain by providing liquidity for international payments and helping stabilize their currencies, experts said.
Wang Jinbin, a professor of economics at the Renmin University of China, said the arrangement will help meet participating economies' demand for the renminbi and stabilize the exchange rate of their currencies against the Chinese currency.
This can in turn help the currencies gain a firmer footing against a basket of key currencies, given the relatively stable value of the renminbi, Wang said.
Hoe Ee Khor, chief economist at the ASEAN+3 Macroeconomic Research Office, said the arrangement is conducive to building a more resilient regional cross-border payment system that is less dependent on the US dollar.
With the arrangement marking a milestone in beefing up the renminbi's role in the global financial safety net, China can take more steps in this regard, thanks to the country's significance in the global economy, experts said.
People's Bank of China Governor Yi Gang declared in June the central banks' readiness to strengthen macroeconomic and financial policy coordination.
To help mitigate the debt risks worsening in some EM economies, Renmin University's Wang said China could participate in debt restructuring and extension arrangements, and facilitate indebted economies issuing bonds in offshore renminbi markets to raise money for debt repayments.
Zhang Liqing, director of the Center for International Finance Studies, which is part of the Central University of Finance and Economics, said China can consider initiating more bilateral currency swaps with financially strained EM economies when appropriate.
A currency swap－in which a country's central bank borrows renminbi with its own currency as collateral－can provide the country with renminbi liquidity for international trade payments and save dollar reserves for debt repayments, Zhang said.
By far, the PBOC has signed bilateral swap deals with 40 monetary authorities. The renminbi's share in global foreign exchange reserves has risen to 2.88 percent as of the first quarter, compared with 2.79 percent a quarter earlier. The US dollar commands a 58.88 percent share.
Experts said China should maintain the stability of its monetary policy and avoid drastic changes in financial conditions from generating spillover effects on other economies.
While the PBOC may attach more importance to price stability in the second half due to rising inflation, its policy stance is expected to remain accommodative without a sharp tightening in monetary conditions, Huatai Securities said in a report.
Official data showed accommodative monetary conditions have spurred credit expansion. China's new yuan-denominated loans totaled 2.81 trillion yuan ($418.97 billion) in June, up by 686.7 billion yuan year-on-year, the PBOC said on July 11.
