Panda Bonds are Sri Lanka Development Bonds in Chinese currency known as RMB (Renminbi) or Yuan. This means that investors who deal in Chinese currency in the bond market can come to Sri Lanka and invest in RMB.
Dr. Amunugama said he believed that since there was a large pool of such currency, Sri Lanka could tap the RMB market with advantage in interest rates and repayment schemes and was more competitive than dollar bonds.
He said because of the large number of Chinese development projects managed through Panda Bonds, Sri Lanka could repay loans obtained from China and also obtain further investments or loans in RMB which would be highly advantageous to Sri Lanka than dealing in US dollars.
“It is interesting to note that the IMF and Euro Zone banks are beginning to prefer the Panda Bonds to dollar bonds that has already been floated in international financial markets,” Dr. Amunugama said.
He said since China was already having a huge dollar surplus – more than three trillion US dollars resulting from two decades of unprecedented growth; it was exploring other avenues of investments.
Dr. Amunugama said such investments would add vigour to the government’s future plans to make Sri Lanka an Asian financial hub and particularly for the Hambantota development project.
“My intention in making this proposal is to launch serious discussions and research making Sri Lanka an important financial market in the region. With the collapse of the Euro Zone and downturn in the US economy, the resilience of the Asian economy gives an opportunity for Sri Lanka to be an innovator in financial management in Asia.
Dr. Amunugama said no one must have a misconception that this exercise would replace the dollar but it was only an exploration of other investment avenues in a rapidly changing global market.
He said if we could convert some of our investments and repayments to RMB our dependency on the dollar would be reduced to some extent and auger well for Sri Lanka’s economy in the long run.
Meanwhile, China also feels that Panda Bonds could help China avoid the risks of US Treasury Bonds. China’s foreign exchange currency reserve has passed US$3 trillion mark and yet grows by some 300 billion dollars every year.
With the worsening US financial crisis, China’s foreign exchange reserves were facing increasingly serious pressure. Undoubtedly China must achieve a more reasonable balance of trade as soon as possible, and that objective is an integral part of the eleventh ‘Five-year Plan’. But if China cannot adequately reduce its current account and capital account surpluses over the short to medium term, then it must find some other way to guarantee the security, liquidity, and profit of its current foreign exchange reserve. Therefore, China would be delighted to invest in Sri Lanka in RMB. (Sandun A. Jayasekera)