ECB And PBOC Swap Line Will Provide A RMB Liquidity Backstop In Europe

The author is ANZ (The Australia and New Zealand Banking Group) Research

The European Central Bank (ECB) and the People’s Bank of China (PBOC) have agreed to establish a bilateral currency swap arrangement to purchase and subsequently repurchase RMB and euro from each other.

The swap agreement, which will be valid for three years, will have a maximum size of RMB350 billion when yuan is provided to the ECB and of €45 billion when euro is provided to the PBOC.

According to the ECB, the swap arrangement is intended to serve as a backstop liquidity facility and to reassure euro area banks of the continuous provision of Chinese yuan.

It has been established at the level of the Eurozone and will be available to all Eurozone counter-parties via national central banks.

The Governing Council of ECB will discuss the technical modalities with which this backstop liquidity facility will be made available and how these technical modalities will be communicated.

Separately, the PBOC also released a notification allowing foreign investors to use RMB to invest in China’s financial institutions. It will also allow dividend repatriation outbound to the foreign investors in RMB.

(The article has been edited for clarity)