World Bank to issue SDR bonds in China for first time

by **Ponee** Sun Aug 28, 2016 12:06 pm

SHANGHAI -- The World Bank will issue bonds denominated in Special Drawing Rights in Shanghai at the end of August -- marking a status boost for the Chinese yuan.
The float is seen comprising three-year bonds totaling 500 million SDR units. This comes to around $700 million, though the value of the International Monetary Fund's reserve asset varies based on the dollar, euro, yen and pound. Details will be announced as soon as Friday.

Though denominated in SDRs, the bonds will be payable in yuan for both Chinese and foreign banks. Interest and principal upon redemption will be paid in the Chinese currency as well, with the amount depending on the SDR market. The bonds will be tradable on the Chinese interbank market, making them an important first step in setting up an SDR-based bond market in this country.

The yuan will join the currency basket backing SDRs in October, and will thus help determine the bonds' value at the time of redemption. The People's Bank of China has authorized the World Bank to issue 2 billion SDR in bonds in the country. If the first float is successful, others could follow.

The state-owned China Development Bank is gearing up to issue its own SDR bonds in September or later. These were initially to hit the market before the World Bank's, though Chinese authorities ultimately "prioritized the better-known" instruments, a financial-sector source said. The government in Beijing is encouraging a variety of banks and international bodies to put out SDR bonds.

The World Bank's float comes just days before the Group of 20 summit in Hangzhou on Sept. 4-5. This is China's first time hosting the gathering -- an occasion the government hopes to use to demonstrate progress on making the yuan an international currency. Meeting that goal fully will take time, given that China still heavily regulates cross-border capital transactions. Issuing SDR instruments is seen as a step to improve the soon-to-be component yuan's global standing.

But the complex nature of SDRs makes hedging currency risks challenging and often costly. Yields on the SDR bonds are also likely to be low, given that they are backed in part by the yen and euro. Investors may not be as hungry for the debt as Chinese authorities hope.

http://asia.nikkei.com/Markets/Capital-Markets/World-Bank-to-issue-SDR-bonds-in-China-for-first-time?

by **Kevind53** Sun Aug 28, 2016 4:47 pm

Not an expert in international finance, but I suspect that this will pretty much amount to a hill of beans. SDRs are only rarely utilized, and circumstances dictate that yields will be very low. I just don't see a lot of demand for the bonds outside of maybe China.

by **Terbo56** Sun Aug 28, 2016 4:54 pm

Why would any country use the Euro to back any currency, and the Yen is just a basic standby currency? The Euro is constantly on the downhill slide, and before too long, it won't be worth anything, like the U.S fiat dollar, unless someone sees a way out of the recession we're in, and stabilize the dollar with something to cover it-

by **Kevind53** Sun Aug 28, 2016 5:18 pm

Except for one problem, the USD is up against every other major currency.

by **Terbo56** Sun Aug 28, 2016 5:24 pm

Yes, but- For how long?

by **Kevind53** Sun Aug 28, 2016 5:40 pm

Indefinitely so, for all it's faults, there is no country whose economy is stronger than the US. There will be no change to a gold based currency by the US or anyone else. Gold, like oil is an commodity. This means it changes constantly in value, sometimes very quickly. It would be foolish to base your economy upon something so unstable.

by **Terbo56** Sun Aug 28, 2016 5:45 pm

I didn't look at it commodity wise, however, you are correct-Everything in that respect, fluctuates-

World Bank to issue SDR bonds in China for first time

World Bank to issue SDR bonds in China for first time

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Re: World Bank to issue SDR bonds in China for first time

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Re: World Bank to issue SDR bonds in China for first time

Re: World Bank to issue SDR bonds in China for first time