The Bank of England said on Saturday that it had agreed the terms of a Rmb200 billion currency swap with the People’s Bank of China, another step in the internationalisation of the renminbi.
The deal furthers London’s efforts to become a fully-fledged offshore renminbi-trading centre, such as Taiwan and Singapore. It also shows China is continuing its policy of opening up, despite its economic slowdown and a credit crunch in its banking sector.
“Renminbi internationalisation remains a part of a broader push by China to liberalise its financial system and to open its capital account,” said analysts at HSBC in a note.
The deal follows news in February that the two central banks were discussing a swap.
Governors Zhou Xiaochuan and Mervyn King signed the agreement to establish the bilateral swap line and said it would be used to promote bilateral trade between the two countries, as well as to support domestic financial stability in the case of market turmoil.
“In the unlikely event that a generalised shortage of offshore renminbi liquidity emerges, the bank will have the capability to facilitate renminbi liquidity to eligible institutions in the UK,” said King.
HSBC noted that the volatility of renminbi liquidity in Hong Kong dropped significantly after the Hong Kong Monetary Authority introduced a renminbi standby facility on the back of an HKD/CNY swap line.
To be sure, the UK-China Rmb200 billion swap is only half the size of the bilateral swap between Hong Kong and China, and the same size as between Australia and China.
China has already signed more than 20 bilateral currency swaps globally, totalling Rmb1.7 trillion.