Deal will initially cover three years.
The People’s Bank of China and the European Central Bank announced the US$57 billion currency swap worth that can be extended beyond three years if both parties agree.
The deal means that bilateral trade between Eurozone businesses and China can be settled in local currencies such as the renminbi and the Euro. It also allows the partners to swap or borrow each other’s currencies at an agreed rate. The deal protects both parties from swings in the exchange rate.
The ECB said trade between the Eurozone and China was worth over US$14 billion in July. China has so far entered into 22 currency swap agreements around the world with deals valued at US$353 billion.
PBOC said the new arrangement will provide more liquidity to the renminbi market in the Euro area; promote overseas use of the renminbi and help facilitate trade and investment.
The ECB noted that the swap arrangement has been established in the context of rapidly growing bilateral trade and investment between the Euro area and China, as well as the need to ensure the stability of financial markets.
Europe's central bank also said the deal would reassure Eurozone banks of the continuous provision of Chinese renminbi.
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