Nepal’s central bank set to gain access to Chinese securities

Nepal’s central bank set to gain access to Chinese securities

KATHMANDU, JUN 21 -

Nepal Rastra Bank ( NRB ) and People’s Bank of China will be signing a memorandum of understanding (MoU) on Friday, paving the way for the NRB to invest in Chinese securities issued by the Chinese government, officials said.

The MoU will open the door for Nepal’s central bank to invest upto 1.20 billion yuan ($ 200 million) in China’s central bank. It means the NRB will be able to invest upto Rs 18.80 billion as per the exchange rate fixed for Friday.

NRB Deputy Governor Gopal Prasad Kafle and visiting Deputy Governor People’s Bank of China Hu Xiaolian are scheduled to sign the MoU on Friday. “MoU signing will be a milestone for developing banking relations between the two central banks,” said Kafle. “It will open the door to other banking relations in the future.”

After the signing ceremony, the NRB will open its Chinese currency account in People’s Bank of China. The Chinese central bank will be investing the money deposited in that account in the Chinese securities including Treasury bills, bonds and debentures on the behalf of Nepal,” said Kafle. As yield of investment in other currencies including US dollar, Euro, Australian dollar and Canadian dollar is comparatively lower, the Nepal central bank sought to invest in Chinese securities which commands higher yield.

“There is an average yield of 4-5 percent for investing in the Chinese securities, while investing in dollar yields less than one percent,” said Kafle. At present, the NRB has heavy investment in US dollar. Investing in the Indian rupee has been the most profitable for the central bank. An NRB board meeting in February 2013 had decided to invest in the Chinese securities.

The NRB said the move was also directed at diversifying its investments in a bid to minimise risks, besides enabling payment for imports from China in yuan. Currently, most of the bills are paid in US dollars. The central bank has already opened a yuan account in a bank in Hong Kong. “The NRB ’s Yuan account will facilitate payment in Yuan for Nepali importers,” said Kafle. “As China is a big trading partner, Chinese currency remains essential for the Nepalis.” After taking the decision of investing in the Chinese securities, the NRB is also planning to hold talks with the Chinese side on the settlement of payments in yuan. The payments are currently settled is done in the US dollar.

An NRB team had visited China in December 2012 to discuss establishing formal relations between the central banks of the two countries. The two sides had discussed the possibility of NRBinvesting in the Chinese securities and promoting payment through letters of credit
.