China and the UK agree on currency swap line

It’s the first such deal with a Group of Seven country.

Bank of England Governor Sir Mervyn King said the swap arrangement will enable the central bank to offset a sudden shortage of renminbi liquidity in London’s trading houses, helping to enhance its role in currency exchange.

The BoE and the People’s Bank of China, the central bank, signed the agreement over the weekend. The agreement will initially last for three years and has a maximum value of US$32.6 billion. BoE said the deal will support the UK’s domestic financial stability.

The swap line size is similar to those with Australia and Brazil but is just half that of Hong Kong’s, reflecting the city’s continued position as the main global hub for offshore renminbi trading.

The deal is the first of its kind within Europe. Only 20 countries have a currency swap agreement with China in place.

Analysts said the bilateral currency swap will help London eventually become a fully fledged offshore renminbi trading center just like Taiwan and Singapore.

The City of London financial district launched an initiative in April on making the British capital a center for renminbi business.