Sri Lanka to add Yuan bonds to forex reserve assets

Jan 02, 2013 (LBO) – Sri Lanka will diversify its foreign reserve assets to reflect government debt and Yuan denominated bonds are a candidate, Central Bank Governor Nivard Cabraal said. Sri Lanka has borrowings mainly in US dollars, Japanese Yen, Special Drawing Rights and Euro but China has become a large lender over the past five years.

Though loans were initially US dollar denominated, over last year several large Yuan denominated loans have been approved.

“Where we have loans we will keep in mind when we are investing also,” Cabraal told LBO.

Sri Lanka’s central bank had 6.5 billion US dollars of foreign reserves by the end of 2013.

Sri Lanka already has Yen and Euro reserve assets. Though Yen bond have low yields currency appreciation gives returns, Cabraal said.

The Yen has consistently appreciated against the US dollar since the collapse of the Bretton Woods system in 1973 from about 300 to the US unit to about 80 now, suffering domestic deflation at times.

Japan appreciated its currency, suffering domestic deflation at times partly due to pressure from US Mercantilists who believed that a trade deficit could be cured by Yen appreciation.

The Yuan is now also being appreciated under US pressure. It has appreciated from 8.2 to the US dollar in July 2005 to about 6.2 in December 2012.