Saudi Arabia thinks that the Chinese yuan is a good option for diversifying foreign currency reserves but it is still far from being a reserve currency, its central bank governor Fahad al-Mubarak said on Sunday.
Asked whether it made sense to consider diversifying the central bank’s reserves to include the yuan, also known as the renminbi, or explore a currency swap agreement, Mubarak said: “We think it is a stronger currency, but it is far from being a reserve currency at this stage.”
“But indeed it represents a good option and a good diversifier and we have seen that some of the central banks have some reserves in the renminbi,” he said at an annual news conference in the Saudi capital.
Mubarak, who does not comment on policy outside of annual press briefings, did not say, however, whether the central bank had considered adding the yuan to its portfolio of net foreign assets. Its reserves, the vast majority of which are believed to be in U.S. dollars, grew to a record $718 billion in January.
A gradual easing of restrictions on the yuan and increasing trade with China have led some of Beijing’s partner countries include the renminbi in their official reserves and open currency swap agreements.
Last year, Taiwan’s central bank said it was holding the yuan in its foreign exchange reserves portfolio in recognition of the yuan’s growing globalisation and importance of trade, while Australia’s central bank unveiled a plan to invest some of its reserves in Chinese government bonds for the first time.
Among the Gulf Arab oil exporters, who mostly peg their currencies to the U.S. dollar, the United Arab Emirates signed a three-year currency swap agreement worth $5.5 billion with China in 2012 to boost two-way trade and investment.
Oil giant Saudi Arabia is the top crude supplier for China, the world’s second biggest economy. Last year, the Gulf monarchy supplied Beijing with around 1.17 million barrels per day of oil and is expected to deliver the same amount this year, according to traders.
Beijing has laid out plans to make the yuan convertible on the capital account, but its market interventions to hold back the pace of appreciation have shown a wariness of currency liberalisation.