China signs second-biggest swap line with ECB

BEIJING/FRANKFURT Thu Oct 10, 2013 3:38pm IST

A structure showing the Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt July 11, 2012. REUTERS/Alex Domanski

A structure showing the Euro currency sign is seen in front of the European Central Bank (ECB) headquarters in Frankfurt July 11, 2012.

Credit: Reuters/Alex Domanski

BEIJING/FRANKFURT (Reuters) - China accelerated plans to internationalize its currency on Thursday by agreeing to swap euros and yuan with the European Central Bank in a deal that is set to be China's second-largest to date.

The bilateral currency swap agreement between the European Central Bank (ECB) and the People's Bank of China (PBOC) is valid for three years and has a maximum size of 350 billion yuan, or 45 billion euros ($60.8 billion).

The deal is the latest of a string of currency swaps that China has created with other nations to promote usage of the yuan in global commercial and financial transactions, with the ultimate goal of rivaling the dollar as a reserve currency.

"The emphasis is on renminbi internationalization," said Louis Kuijs, an RBS economist in Hong Kong.

He said currency swaps also provide central banks with additional liquidity in times of financial emergencies, though this function is of secondary purpose in China's swap agreements.

The swap deal with the ECB is China's second-biggest with a foreign central bank, after South Korea's 360 billion yuan swap line. China also has a 400 billion yuan swap agreement with Hong Kong.

As China's second-largest trade partner, Europe is a natural destination for Beijing in raising the yuan's profile. The interest is reciprocated by some European nations such as Britain and Germany which want to be the clearing center for the yuan in Europe and provide what may be a lucrative financial service.

The yuan is now the world's eighth most-traded currency, financial services provider SWIFT said this week, with a market share of 1.5 percent and overtaking the Swedish krona, the South Korean won and the Russian rouble.

China's swap deal with the ECB comes after French President Francois Hollande said in June that France is working on setting up a currency swap line with the world's No. 2 economy.

Bank of France Governor Christian Noyer welcomed the agreement on Thursday.

"Banks in the euro zone and France will henceforth have the security they need to develop their activities in renminbi over the long term," Noyer said in a statement to Reuters.

Only Hong Kong has been anointed by Beijing as an official offshore trading center for the yuan, although banks in Taiwan and Singapore also provide similar services.

With its status a center for global foreign exchange trading, London appears to be the forerunner in clinching an agreement with Beijing to become Europe's offshore yuan trading center, Chinese academics have said.

Indeed, SWIFT said its data showed 60 percent of yuan trades are done out of Britain.

($1 = 0.7398 euros)

(Reporting by Koh Gui Qing in BEIJING, Jean-Baptiste Vey in Paris and Frankfurt Newsroom; Editing by Kim Coghill)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

Adani Project

Adani Project

Australia approves Adani's $16 bln Carmichael coal project  Full Article 

India-U.S. Talks

India-U.S. Talks

Kerry to woo Modi's India, but quick progress unlikely  Full Article 

Paring Debt

Paring Debt

Jaiprakash to sell hydro plants to Reliance Power  Full Article 

Nifty Falls

Nifty Falls

The broader index hits lowest in nearly a week on profit taking  Full Article 

Mideast Conflict

Mideast Conflict

U.N. Security Council calls for humanitarian ceasefire in Gaza  Full Article 

Market Eye

Market Eye

Foreign investors prefer Indian cyclicals, utilities - Macquarie  Full Article 

Debt Investment

Debt Investment

India's FII debt limit hike credit-positive, says Moody's  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage