Austria wants to issue bonds in Chinese yuan

Austria wants to be the first country in the eurozone to want government bonds convoke in the Chinese yuan. These so-called panda bonds will be offered to investors on the Chinese market. It is not yet known how many of these bonds will be issued and under what conditions.

Austria's federal funding body signed a letter of intent with the Industrial and Commercial Bank of China (ICBC) last Sunday. If both parties reach an agreement, the Austrian government will have the option to borrow money in the yuan for two years.

It is remarkable that a Eurozone country decides to borrow in the yuan, as this currency is less tradable internationally than the euro. It therefore appears to be mainly a symbolic measure. Austria has been seeking rapprochement with China for some time in order to strengthen economic ties. The Chancellor was also present at the second Belt and Road forum, which was held in Beijing last week.

Austria is the first euro country to issue yuan-denominated bonds. The country is not the only one, as Portugal is also said to be interested in borrowing in the yuan. Outside the eurozone, bonds denominated in Chinese currencies have already been issued, including in Poland and Hungary.

Chinese yuan bonds

The Chinese yuan is still in its infancy as an international trading currency. Certainly compared to the dollar and the euro, the yuan is still rarely used for international transactions. Also, it has only been a few years since major central banks have held a substantial amount of yuan in their reserves. The ECB Added the Chinese currency in 2017, while the Russian central bank continued to strengthen its position in the Chinese currency last year. Expanded.

The problem with the Chinese currency is that it is not yet fully freely convertible. As a result, it is not possible to exchange unlimited yuan to another currency. Also, China's central bank is not yet allowing the currency to move completely freely. As a result, the risk of a possible devaluation remains. It is therefore mainly China that has an interest in a greater role for the yuan. By promoting its own currency as a trading currency, it needs to hold fewer dollars. If other countries with a good credit status issue yuan-denominated bonds, it will also be easier to park assets safely in the yuan.