By: Dr. Mike Campbell
For the first time, the World Bank has issued an investment bond denominated in the Chinese currency, the Yuan (which is known as the Renminbi, or “people’s currency” in China). As many people expect the value of Yuan to rise since they believe that the Chinese have kept the value of the currency artificially low, the issue may attract a lot of investors.
A bond is an investment vehicle which allows the issuer to raise capital on the markets. Investors are promised a (usually) fixed yield on their investment and full redemption of the invested value on the due date, but the value of the bond may fluctuate during its lifetime.
China recently took over the mantle of the world’s second largest economy from Japan. The Chinese issued their own Yuan bonds for the first time in September. The World Bank hopes that the issuance of Yuan bonds will lead to increased use of the Chinese currency in international markets.
A market for Yuan bonds has become established in Hong Kong over the last three years. Hong Kong was a major business centre when a dependency of the British. The colony has reverted to Chinese control under the one country two systems scheme and plays the role of an intermediary between communist China and capitalist economies.
Commercial enterprises such as MacDonald’s (the fast food restaurant) and Caterpillar (the earth moving machines company) have also issued Yuan bonds to finance their expansion in the region. The initial World Bank Yuan bond is set to raise a (relatively) modest sum of $76 million (500 million Yuan).