China and Britain have agreed to set up a currency swap line, in a move aimed at boosting trade and promoting the yuan's overseas use, China's central bank announced.
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The People's Bank of China and The Bank of England signed an agreement on Saturday to establish a reciprocal three-year, sterling/yuan currency swap line, which will have a maximum value of 200 billion yuan ($32.6 billion).
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The agreement follows the announcement of discussions between the two central banks on February 22.
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It is the first time China has reached such an agreement with a G7 country.
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The swap line will be used to promote bilateral trade and direct investment between the two countries, as well as providing liquidity to facilitate further development of London's offshore yuan market, China's central bank said.
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"The establishment of a sterling/yuan swap line will support UK domestic financial stability. In the unlikely event that a generalized shortage of offshore yuan liquidity emerges, the Bank of England will have the capability to facilitate yuan liquidity for eligible institutions in the UK," Mervyn King, governor of the Bank of England, said in a statement.
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"The agreement has political significance and is an important step for the yuan's internationalization," Liu Dongliang, a currency analyst at China Merchants Bank Co, told the Global Times.
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"It will also help boost the development of London's yuan business," he said.
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There has been strong growth in the use of yuan by UK-based corporations, after Britain launched a plan in April last year to build London into a center for yuan business, according to a report released by Bourse Consult on June 12.
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For instance, import and export financing in Britain totaled 33.6 billion yuan in 2012, up by 100 percent compared with 2011, the report said.
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The development of London's yuan market is exactly the sort of thing Britain should be doing to lead in the global race, the Xinhua News Agency quoted British Chancellor George Osborne as saying on June 12.
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Before the deal with Britain, China had agreed swap lines with 19 countries and regions since 2008.
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"Currency swap lines are part of China's efforts to internationalize the yuan, but there is still a long way to go," Tan Yaling, head of the China Forex Investment Research Institute, told the Global Times Sunday.
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China and Britain have agreed to set up a currency swap line, in a move aimed at boosting trade and promoting the yuan's overseas use, China's central bank announced.
