China is building a yuan currency reserve to compete with the dollar and prop up other economies facing volatility

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Xi Jinping
Chinese President Xi Jinping.Xie Huanchi/Xinhua via Getty Images
  • The People's Bank of China announced it's developing a yuan reserve with five other nations.

  • Five nations including Hong Kong and Singapore will contribute 15 billion yuan, or about $2.2 billion.

  • In May, China's foreign-exchange reserves, the world's largest, grew for the first time in 2022.

The People's Bank of China is building a yuan reserve with five other nations in collaboration with the Bank for International Settlements.

China is teaming up with Indonesia, Malaysia, Hong Kong, Singapore, and Chile to each contribute 15 billion yuan — about $2.2 billion — to a Renminbi Liquidity Arrangement, China's central bank said in a Saturday statement. "When in need of liquidity, participating central banks would not only be able to draw down on their contributions, but would also gain access to additional funding through a collateralised liquidity window," the bank said.

Per the report, the funds will be stored with the Bank for International Settlements.

The announcement follows Russia and China's endeavor to develop a new reserve currency with other BRICS countries, President Vladimir Putin announced last week.

The basket of currencies would present a US-dominated IMF alternative, and include contributions from Brazil, Russia, India, China, and South Africa.

"The matter of creating the international reserve currency based on the basket of currencies of our countries is under review," Putin told the BRICS Business Forum on Wednesday, according to a TASS report. "We are ready to openly work with all fair partners."

Meanwhile, last month, China's foreign exchange reserves — the world's largest — grew for the first time in 2022, state data shows. The nation's reserves rose by $80.6 billion to reach $3.13 trillion.

At the same time, the US dollar has hit a 20-year high in recent weeks.

And, in March, reports emerged of a Saudi oil deal priced in the yuan. An economist told Insider that a deal done without dollars could signal unease in relying too heavily on the US currency.

"While any deal would be symbolic, the Chinese are not alone in the search for a non-dollar reserve currency," Aleksandar Tomic told Insider previously. "Other countries' need for dollars exposes them to the US financial sector, and consequently gives the US political leverage."

Read the original article on Business Insider