Indonesia's central bank has begun investing in China's largest bond market, the People's Bank of China said yesterday, marking closer ties between the two Asian countries and increasing internationalization of the yuan.

Bank Indonesia is the latest among foreign financial institutions, which include the World Bank and central banks of Austria and Malaysia, to be allowed to invest in the interbank market.

China opened the market in 2010 as part of its efforts to boost offshore holdings and the use of the yuan.

"China welcomes (the Indonesian investment)," the PBOC said in a statement yesterday. "Both sides believe that the move will boost financial cooperation between the two countries."

China and Indonesia signed a three-year currency swap deal worth 100 billion yuan (US$16 billion) in March 2009 and companies in the two countries are encouraged to accept export and import bills in yuan.

Bank of Indonesia said in a statement that the investment was a follow-up on the bilateral financial agreement between the two countries, and reflected the close relationship between the countries' central banks.

Asian nations have enhanced their financial links recently to hedge risks brought about by the uncertain economic outlook in Europe and the United States.

This year, central banks in South Korea and Japan announced plans to increase their holdings of Chinese government bonds as part of their countries' efforts to diversify their foreign currency reserves.

China increased its holding of Japanese government bonds by 71 percent last year, reaching a total of 18 trillion yen (US$230 billion).

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