NRB to make investments in Chinese securities

KATHMANDU, APR 25 -

Nepal Rastra Bank (NRB) has decided to invest in various debt instruments of the People’s Bank of China in a reflection of the rising trade relations between the two countries. NRB also plans to make yuan fixed deposits in Chinese banks besides investing in securities issued by the Chinese central bank.

NRB said the move was directed at diversifying its investments in a bid to minimize 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.

“Investing in Chinese securities is also beneficial compared to investments elsewhere,” said NRB deputy governor Gopal Kafle.

About three months ago, the NRB board had decided to invest in Chinese securities such as treasury bills and bonds after receiving an informal green signal from the Chinese side. However, such investments will be possible only after the two central banks sign a memorandum of understanding (MoU) to expand banking relations.

“It will probably take two-three months to sign the MoU which will include a provision allowing investment in Chinese securities,” said Kafle. He added that the People’s Bank of China had sent a template of the MoU which is being discussed at NRB. “We will send back the template with our inputs soon,” he said.

NRB will first open an account with the Chinese central bank in yuan after signing the MoU. The funds deposited in the account will then be used to make varied investments.

A few years ago when Tilak Rawal was the governor of NRB, the two central banks had signed an MoU to promote banking relations. However, it was not updated, and a fresh MoU became necessary to make investments in Chinese currency, according to Kafle.

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 NRB investing in Chinese securities and promoting payment through letter of credit.

Currently, most of the payments to Chinese parties are being done via bank draft and telegraphic transfer (TT). These modes of payment are considered to be relatively risky as they are similar to cash payment, raising chances of Nepali traders being duped in case of faulty consignments. Currently, there has been a decline in the number of transactions being done through letter of credit between the two countries.

“More importantly, formal relations between the two central banks is also important politically as they will suggest deep relations between the two countries,” said Kafle.

Source: The Kathmandu Post