The European Central Bank (ECB) and the People’s Bank of China (PBOC) are to establish a new swap line between the euro and the Chinese yuan. The line that will be in operation for three years has a maximum size of 350 billion yuan, or 45 billion euros. The main objective of the system is “to serve as a backstop liquidity facility and to reassure euro area banks of the continuous provision of Chinese yuan” the ECB said. The line will be available to all eurozone members via their respective national banks.
ECB is not the only bank with which China established closer ties. PBOC has similar agreements with Malaysia, South Korea and Australia. In Europe, the Bank of England was first to create swap facilities with Beijing. Frankfurt came as a natural further step given its strategic position for both German and Union’s financial markets. China is Germany’s third-biggest trading partner and both countries exchanged goods and services worth 144 billion USD last year, Germany’s Federal Statistics Office reports.
RMB swap systems are part of China’s RMB strategy to go international. PBOC Governor Zhou Xiaochuan pledged to expand cross-border use of the yuan and motivate international companies to include the currency in their portfolios. China will also deregulate trading between the yuan and foreign currencies and promote more convertibility without losing control of its capital flows, Zhou added.
According to Christian Noyer, France’s representative on the ECB’s Governing Council, the new ECB-PBOC line reflect the meaningful position of the European single currency in global markets, as well as China’s commitment to build and expand upon the existing trade links with the EU. Ultimately, the agreement between the European Central Bank and the People’s Bank of China on a currency swap line also points to the Chinese currency’s growing importance on the international stage.
