# Australia to shift 5% of foreign reserves to China

Deputy governor Philip Lowe reveals the Reserve Bank of Australia will invest around 5% of its foreign exchange reserves in China; Asian economists divided over significance of move

The Reserve Bank of Australia (RBA) today revealed plans to invest around 5% of its foreign exchange reserves in China.

Philip Lowe, an RBA deputy governor, said the decision was "an important one" that reflects the "increasing financial ties" between Australia and China, and acknowledged the potential for these ties to grow "substantially further".

"It provides greater diversification of our investments and will help with our understanding of the Chinese financial markets," he said. "Over the long run and particularly as capital account liberalisation occurs in China, the renminbi is likely to become one of the major reserve currencies of the region."

At the end of March, the RBA valued its reserves at A$50.8 billion, A$39.9 billion of which is held as foreign exchange.

In the past year, China accounted for 26% of Australia's exports and 15% of its imports. Ray Attrill, global co-head of currency strategy at National Australia Bank, said it is "quite natural the RBA would want to own Chinese currency, to the extent they would want their reserve to bear some kind of resemblance to the underlying trade patterns of the country".

###### I don't expect it will be very long before we see other central banks making overtures to the Chinese authorities

He said that 5% is in fact "relatively small" given the prevalence of the currency in Australia's trading activities, and consequently "could be the thin end of the wedge, in terms of where they ultimately would hope to get to".

Earlier this month the RBA announced direct trading between the Australian dollar and the Chinese renminbi in the onshore market, making it one of three currencies – alongside the US dollar and the yen – for which direct trading is possible.

Attrill said the development had been "trumpeted as a major step forward in terms of trade and currency market liberalisation", and suggested that the option to purchase yuan-denominated assets was "almost like a reward for that".