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, Reuters informs, quoted by Mediafax.
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 EUR 45 billion (USD 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 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.
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.