New York: The World Bank is set to sell bonds denominated in the International Monetary Fund’s Special Drawing Rights units in China, the first such issuance in three decades.
The Washington, DC-based institution has won approval to issue 2 billion SDR units of bonds in the Chinese interbank market, the country’s central bank said in a statement on its website. The timing and terms of the bond issuance, equivalent to $2.8 billion (Dh10.3 billion) and payable in the yuan, will be based on market conditions, the World Bank said.
“This is a landmark development for China’s bond market and for the SDR as an international reserve asset,” said World Bank Group President Jim Yong Kim in the statement. The issuance will help promote the use of SDRs and “increase Chinese investors’ access to foreign currencies in the domestic bond market,” he said.
The announcement comes as the IMF is scheduled to officially include the yuan as the fifth global reserve currency in its SDR basket in October, a milestone in a decades-long ascent toward international credibility for the yuan. Created in 1969, the SDR basket currently consists of the dollar, euro, yen and British pound, serving to supplement nations’ official foreign-exchange reserves and used as an accounting unit usually deployed in bailout packages.
Flexibility
The World Bank’s SDR bond issuance is “a useful experiment” to promote the SDR, which “helps strengthen the stability and flexibility of the international monetary system,” the People’s Bank of China said in the statement. Separately, the IMF said that it welcomes the move and it is exploring ways for the SDR to play a “a broader role” in the international monetary system.
The World Bank said Friday that Industrial & Commercial Bank of China, HSBC Holdings Plc, China Construction Bank and China Development Bank, will help sell the bonds. It will meet with institutional investors next week in Shanghai and Beijing. The law firm of King & Wood Mallesons (Hong Kong and Beijing) is acting as its counsel on the bond issue.
China Development Bank and ICBC are also planning to sell SDR-denominated notes, people familiar with the offerings told Bloomberg last month.
