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PBoC, ECB test Swap Arrangement; PBoc Unveils Offshore Parties to FX Market

The People’s Bank of
China and the European Central Bank have successfully completed tests of their
existing bilateral currency swap arrangement.

From a Eurosystem
perspective, the ECB says the arrangement serves as a backstop facility to
address sudden and temporary disruptions in the renminbi market due to
liquidity shortages in euro area banks.

“Liquidity providing
arrangements contribute to global financial stability and the arrangement with
the PBoC is a recognition of the rapidly growing bilateral trade and investment
between the euro area and China,” the ECB says.

The swap arrangement was
established in Octiober 2013 with a maximum size of RMB 350 billion and EUR 45
billion. As part of the ECB’s plan to regularly test its operational
capabilities, the ECB and the PBoC conducted two tests in April 2015 and
November 2015 that provided symbolic amounts of euro and renminbi liquidity

Meanwhile, the PBoC has
named the first group of central banks, sovereign wealth funds and
international financial institutions that will be allowed to transact in the
domestic FX market.

The Hong Kong Monetary
Authority, Reserve Bank of Australia, Hungarian National Bank, International
Bank for Reconstruction and Development, International Development Association,
World Bank Group Trust Funds and GIC Private Limited are the first seven
institutions, more are expected to be named in the coming weeks.

“This group covers all
three categories of institutions, namely foreign central banks (monetary
authorities), international financial institutions, and sovereign wealth funds,”
PBoC says in a statement. “The above-mentioned foreign central banks and
similar institutions chose on their own one or more channels from the three
options, including directly participating in the inter-bank FX market as
foreign members, using inter-bank FX market members as their agent(s), and
entrusting the PBoC as their agent, to conduct RMB and foreign exchange trading
of one or more traded FX products including spots, forwards, swaps and options.”  Twitter @lamboPnL

Colin Lambert

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