Global central bank reserves in RMB have seen a significant jump in Q2 2018, rising by 32.6% to $193.4bn, according to data by the International Monetary Fund. The RMB entered the IMF special drawing rights basket in October 2016. This is the largest jump since IMF started accounting for RMB reserves separately in Q2 2017.
Brad Setser, senior fellow for international economics at the Council on Foreign Relations, wrote in a note on October 9 that Russia had reportedly reduced its US Treasuries holdings by around $80bn in the same quarter and that likely meant China had absorbed most of that, meaning that Russia has now substantially increased the share of RMB in its reserve assets.
"Russia, of course, is a unique case," wrote Setser. "It is small enough that China could, more or less, absorb a large portion of Russia’s former dollar reserves. Moreover, it is increasingly becoming clear that China is thinking of ways of absorbing reserve related inflows that wouldn’t require running a current account deficit—it could, with a bit of engineering, use the inflows to fund belt and road related lending in yuan. At least if it can find willing borrowers."
The US Treasury is moving forward with new legislation that will impose much tighter scrutiny on inbound investments in US companies that the government deems sensitive under national security grounds, according to a document drafting interim rules published on October 10. The new rules will amount to a revamp of the existing Committee on Foreign Investment in the United States (CFIUS) reviews and are being seen as specifically targeted to block unwanted Chinese acquisitions of sensitive US technology and intellectual property. The rules are implemented following the introduction of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) at the start of the year.
"These temporary regulations address specific risks to U.S. critical technology while informing the development of final regulations that will fully implement FIRRMA,” said Steven Mnuchin, the US Treasury secretary.
In another signal to China, the US Treasury is set to issue its report on foreign currencies' management next week, with the review being expanded from 13 to 20 currencies. In a report on October 10, Cliff Tan, East Asian head of global markets research for MUFG, said the bank has come to believe the US will designate China as a currency manipulator for the first since 1994.
"[China's designation is] not so much for objective (and defensible) reasons than that such a designation fits in better with the Trump Narrative and how we think the Administration will further escalate its trade war with China," Tan wrote. "As such, you might call currency manipulation the first shot of further escalation."