China, Hong Kong Expand Currency-Swap Pact to 400 Billion Yuan

China’s central bank and the Hong Kong Monetary Authority expanded their three-year currency-swap agreement to 400 billion yuan ($63 billion), to bolster Hong Kong’s development as an offshore yuan center.

The agreement will allow Hong Kong to access to yuan from the People’s Bank of China for three years, replacing another one of 200 billion yuan signed in January 2009, according to the statement on the PBOC’s website.

Hong Kong’s monetary authority was forced to tap its yuan swap agreement with the PBOC in October last year after demand for trade settlement using the Chinese currency exceeded expectations. Cross-border trade settled in yuan through Hong Kong rose to more than 1.3 trillion yuan in January through September, according to the HKMA.

The renewal of the agreement “is crucial in helping us to provide liquidity, when necessary, to maintain the stability of the offshore renminbi market in Hong Kong,” Norman Chan, Chief Executive of the HKMA said, referring to the yuan by its official name, in a release on the central bank’s website today.

Frances Cheung, a senior strategist at Credit Agricole CIB, wrote in a research note that the swap will allow the HKMA to offer banks yuan and also expand the portion of its reserves invested in the currency in onshore markets as it diversifies from the dollar.

To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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