China has signed a 350-billion-yuan (45 billion euro) currency swap agreement with the European Union, marking a major step in internationalizing its currency.
The deal, signed between the People's Bank of China (PBOC) and the European Central Bank on Wednesday, aims to support bilateral trade and protect financial stability, according to a statement on the PBOC website.
The agreement lasts three years and can be extended if both parties agree, it said.
"The new arrangement will provide more liquidity to the renminbi market in the euro area, promote overseas use of the yuan, and help facilitate trade and investment," the statement added.
So far China has signed currency swap deals totaling 2.2 trillion yuan(358 billion U.S. dollars) with 22 countries and regions to push the international use of its yuan.
On Oct. 1, China signed a 100-billion-yuan currency swap agreement with Indonesia and signed similar agreements with Hungary and Albania in September, bringing China closer to making its currency fully convertible.
The agreement with the EU indicates that China has signed currency swap deals with developed nations instead of neighboring and developing countries.
"The deal with the world's second-largest currency regulator means the increasing international recognition of the Chinese yuan," said Zong Liang, deputy chief of the Strategic Planning Research Institute under the Bank of China.
In September, the yuan jumped to ninth in the latest survey by Bank for International Settlements on foreign-exchange turnover, with its daily trading more than tripling to 120 billion U.S. dollars from 34 billion U.S. dollars three years ago, when it was ranked the 17th most-actively traded.
"The global increasing need for renminbi transactions is a natural choice as the Chinese yuan has a stable exchange rate and is more risk-proof," according to Guo Tianyong, a financial studies professor with the Central University of Finance and Economics.
Meanwhile, the deal will expand renminbi-based settlement, reducing reliance on the U.S. dollar, which can hedge against the risk of U.S. possible debt default, Guo added.
