Euroclear, one of Europe's largest financial intermediaries with over €43 trillion of assets under custody, is considering accepting China onshore bonds traded in Hong Kong as collateral, expanding beyond its current acceptance of only offshore bonds. This development, as reported by Rabobank's Global Strategist Michael Every, could support Beijing's efforts to promote yuan internationalisation and counterbalance the global dominance of the US dollar [1].
The move comes at a time when the European Union is seeking greater strategic autonomy and aiming to increase the global usage of the euro, particularly in trade commodity finance. Currently, the euro accounts for around 6% of the global total in SWIFT transactions, and even less when considering that more trade is being conducted on China's CIPS system [1].
Every notes that while Euroclear is free to make its own decisions, the political and geopolitical ramifications of this move remain uncertain, especially given the current international climate. The United States is likely to pay close attention to the timing of this development, particularly as former President Trump is in Beijing for negotiations. The report also highlights that USD swaplines have become openly politicised by the US Treasury, referencing recent actions involving Argentina and the UAE, and remarks from the next potential Fed Chair, Warsh, who stated that Fed swaplines are not necessarily subject to central-bank independence [1].
Overall, the consideration by Euroclear to accept China onshore bonds as collateral could have significant implications for the balance of power in global finance, potentially influencing the international roles of both the euro and the yuan.
CONCLUSION
Euroclear's potential acceptance of China onshore bonds as collateral marks a notable shift in global financial dynamics, supporting yuan internationalisation amid the EU's push for greater euro usage. The move introduces new geopolitical considerations, with the US likely to scrutinize its timing and implications. Market participants will be watching closely to see how this development unfolds politically and economically.