Tan Kin Lian - Perspectives An alternative reserve currency
The USD is now the dominant reserve currency. Many currencies convert their foreign currencies into USD and buy US bonds to keep as their reserves. They can sell the US bonds into USD to pay for their international payments. 

In recent years, the US government had imposed sanctions on several countries and entities to stop them from using the USD. They have frozen their assets in US financial institutions. 

Due to the risk of sanctions, many countries are looking for an alternative to US bonds. Holding US bonds are now risky as the US government has a large deficit of over 30 trillion USD. There may come a time when investors are not willing to buy and hold US bonds. 

The Chinese government is reluctant to issue CNY bonds as an alternative to US bonds for international investors. They may find it difficult to invest the excess liquidity and may subject the value of the CNY to volatility. 

I have a suggestion for the government of China on how to offer the CNY as a reserve currency. 

The China government can issue bonds for say 1 trillion USD. They can pay an attractive interest rate that is comparable or slightly higher than US bonds. They can use the money to invest in China stocks, which are now considerably undervalued. The stocks can pay a dividend that can cover the interest paid on the CNY bonds. 

The China government can also offer an exchange traded fund (ETF) comprising of China stocks. International investors have the option to invest in the China stock ETF, instead of China bonds. 

This will create a liquid market for international investors to invest their reserves, either in China bonds or the China ETF.

The central bank of China can provide the financial support to ensure a stable market for these assets. It is similar to the process of keeping the value of the CNY currency at a stable level. 

I hope that the China government will consider this step to provide international investors with an alternative to US bonds. This will make the CNY an attractive reserve currency, without exposing the CNY to large volatility. 

Tan Kin Lian  
 

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