The European Central Bank (ECB) announced on Monday the extension of its currency swap agreement with the People’s Bank of China for an additional three years. The move aims to ensure liquidity stability and prevent any sudden disruptions that could affect commercial banks.
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The agreement, initially announced in 2013, will now run until October 2028, maintaining the same amount previously agreed upon: 350 billion Chinese yuan (renminbi) and 45 billion euros.
The ECB explained that the arrangement serves as a precautionary tool that can be used to address any sudden, temporary shortage of yuan liquidity for banks operating in the Eurozone due to disturbances in the Chinese currency market.
Objectives of the Cooperation
The agreement seeks to bolster confidence in the financial system and support the resilience of European banks in facing potential shocks in currency markets.
It also reflects ongoing cooperation between Europe’s largest economic bloc and the world’s second-largest economy, at a time when flexible financial arrangements are increasingly needed to cope with international market fluctuations.
Currency swap agreements are a key instrument in central bank financial relations, providing a direct way to secure foreign currency liquidity when needed.
The extension of the ECB-China swap line comes amid the rising role of the yuan in global trade, particularly as more countries move to use it in commercial settlements outside the U.S. dollar, and against the backdrop of ongoing challenges in the global economy, including debt pressures and slowing growth in some markets.
-- CNN
