China-Australia Agree on Bilateral Currency Swap Agreement

China-Australia Agree on Bilateral Currency Swap AgreementThe central banks of China and Australia signed a currency swap agreement yesterday that will allow RMB200 billion (A$30 billion) worth of local currencies to be exchanged between the two countries over three years.

The purpose of the agreement, according the People’s Bank of China, is to help strengthen financial cooperation between the two sides, boost bilateral trade and investment, and promote regional financial stability. “The agreement reflects the increasing opportunities available to settle trade between the two countries in Chinese renminbi and to make RMB-denominated investments,” the Reserve Bank of Australia said in a press release.

Earlier this year, China and Mongolia doubled the value of their bilateral currency swap agreement from RMB5 billion to RMB10 billion and Malaysia also increased its currency swap agreement with China from RMB80 billion to RMB180 billion. Also, in addition to its latest deal with Australia, China has signed new currency swap agreements this year with the United Arab Emirates worth RMB35 billion and with Turkey worth RMB10 billion.

Other countries that have signed bilateral currency swap agreements with China since 2009 include: Argentina (RMB150 billion), Belarus (RMB20 billion), Hong Kong (RMB400 billion), Iceland (RMB3.5 billion), Indonesia (RMB100 billion), Kazakhstan (RMB7 billion), New Zealand (RMB25 billion), Pakistan (RMB10 billion), Singapore (RMB150 billion), South Korea (RMB360 billion), Thailand (RMB70 billion), Turkey (RMB10 billion), and Uzbekistan (RMB700 million).

Furthermore, it is reported by the Financial Times that the central banks of England and Japan could soon be in line for currency swaps with China. This accelerated expansion of RMB-denominated currency swaps confirm China’s determination to make its tightly-controlled currency more internationally accepted.

However, experts and analysts are not so optimistic that the RMB will take the place of the U.S. dollar as the premier international currency any time in the near future, as the currency is only permitted to flow out of the country through very limited channels. Any further internationalization of the RMB needs to be accompanied by bolder steps from the Chinese government to open up its controlled capital market and its fixed foreign exchange rate

For professional assistance in China contact Rosario Di Maggio at rosario.dimaggio@dezshira.com or visit www.dezshira.com

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China Briefing hosts a wealth of business intelligence on legal, tax, and operational issues in China from a practical perspective. Knowledge, expertise and commentary for China Briefing is regularly contributed by Dezan Shira & Associates´ professional legal and tax staff. Currently located in Futian district, Dezan Shira & Associates has been assisting foreign companies in Shenzhen for 22 years.

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