China, Singapore Double Currency Swap Agreement to $48 Billion

China and Singapore doubled a currency swap agreement to 300 billion yuan ($48.3 billion) after the city-state became the third offshore center for the Chinese currency last month.

Under the new arrangement, the funds will be available to eligible financial institutions in Singapore and those operating in China for a period of three years, the central banks said in a statement yesterday. China was the republic’s third-largest trading partner after Malaysia and Europe in 2012.

The People’s Bank of China gave Industrial & Commercial Bank of China Ltd. the right to clear yuan transactions in Singapore last month, joining Hong Kong and Taiwan. London is also in the process of arranging a currency swap with China as it seeks to become an offshore yuan center in Europe.

“The new bilateral currency swap arrangement reinforces the co-operation between PBC and MAS to strengthen economic ties and foster financial stability,” the banks said yesterday. The agreement will “enable both central banks to provide foreign currency liquidity to stabilize financial markets,” it said.

Chinese Premier Wen Jiabao pledged this past week to expand cross-border use of the yuan and encourage foreign investment, as the government plans to allow the budget deficit to widen by 50 percent in 2013 to spur economic growth. The new agreement was signed on March 7 and will replace the previous arrangement dated July 23, 2010, the central banks said in the statement.

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“We expect the swap line to help boost the offshore renminbi market and advance the proceeds of renminbi internationalization,” Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, wrote in an e-mail yesterday. “We expect further swap lines and offshore markets to be established in coming years.

The increased swap makes the Southeast Asian nation the third-largest counterparty after Hong Kong’s 400 billion yuan and South Korea’s 350 billion yuan out of the 18 countries with which China has such lines, Kowalczyk wrote.

Singapore is the largest currency trading center in Asia after Tokyo, according to the most recent triennial survey by the Bank for International Settlements issued in September 2010. Its average daily foreign-exchange turnover is $300 billion, according to a July 30 report from the Singapore Foreign Exchange Market Committee.

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