The People's Bank of China said it plans to replace LIBOR with depository-institutions repo rate, a key reference indicator for monetary policy management and financial market pricing as it seeks to reform the country's benchmark interest rate system.

Depository-institutions repo rate, or DR, is the weighted average interest rate of interest rate bond pledged repo transactions conducted among depository financial institutions, according to a white paper published Aug. 31. Since 2020, the daily trading base for DR, which covers 11 tenors, has exceeded 1.8 trillion yuan, which accounts for 48% of the interbank repo market in China.

The central bank said more efforts will be made in innovating and broadening the use of the new reference rates in financial products, including floating-rate bonds and floating-rate interbank certificate of deposits. It added that the new DR "best reflects" the banking sector's level of liquidity and funding rates, enjoys relatively high market recognition and mostly resembles risk-free rates or new international benchmark interest rates.

The central bank said it will encourage international organizations to use the new reference rates when selecting yuan-denominated benchmark interest rate.

Meanwhile, Chinese banks have been instructed to start preparing for benchmark transitions as soon as possible, which include participating in the design and application of new benchmark interest rates, promoting benchmark transitions of new contracts and exploring the benchmark transition arrangements for the legacy contracts, the central bank said.

As of Aug. 31, US$1 was equivalent to 6.85 Chinese yuan.