Business World

Tuesday 20 February 2018

UK in €24bn currency swap deal with China

The Bank of England has signed €24bn currency "swap" deal with China for the first time.

The Bank of England and the European Central Bank have a similar arrangement in place which was one of the tools available to officials during the worst days of the financial crisis.

China's deal with the UK could boost foreign investor confidence in the Chinese 'yuan' at a time when analysts are becoming increasingly nervous about the country's banking situation.

It is the first deal of its kind between China and a major developed economy.

China has currency swap deals in place with a number of neighbouring countries and raw material suppliers such as Australia.

China is the second biggest economy in the world but the yuan is not yet an established global currency.

The deal, signed by Bank of England governor Mervyn King and People's Bank of China chief Zhou Xiaochuan, means the banks can draw on each other's currencies directly in the event of a sudden shortage on the markets.

Shortages can occur because China restricts the flow of its currency overseas.

The three-year deal will allow the two countries to swap their currencies when needed – instead of UK banks having to source Chinese money on the international markets during any potential shortage.

The UK hopes the agreement puts the Bank of England first in a race among European central banks for Chinese foreign exchange trading. London is already the centre of the world's currency trading. (Bloomberg)

Irish Independent

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