China lends first foreign-denominated funds under currency swap
Last Updated: 2014-05-31 08:07 | Xinhua
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China's central bank on Friday lent 400 million Korean won to support trade settlement financing for Chinese importers of goods from the Republic of Korea (ROK), marking its first use of foreign currency under currency swap agreements.

The small symbolic move, announced by the People's Bank of China (PBOC) on its website, marks a shift in the world's second-largest economy, where policymakers hope enterprises will increase the use of the renminbi and other alternative currencies to the U.S. dollar in trade and investment settlement.

A Chinese bank borrowed the first Korean won-denominated funds under the currency swap line between the PBOC and the Bank of Korea, the ROK's central bank, then granted the won-denominated loans to a Chinese company to make payments for ROK imports.

Under the currency swap agreement, the PBOC's Friday lending in Korean won is equivalent to some 2.4 million yuan (about 390,000 U.S. dollars).

"The first use of Korean won funds by the PBOC has boosted cooperation under the bilateral currency swap agreement," the PBOC said in a statement, adding that Chinese and Korean enterprises could reduce the costs of financing and currency exchange through the swap.

Beijing and Seoul extended their currency swap agreement for another three years in October 2011, doubling the value of the deal to 360 billion yuan from the previous 180 billion yuan.

The PBOC and the BOK agreed in December 2012 to use the swap line to support trade settlement in each country's respective currencies for domestic companies.

China has become the ROK's largest trading partner, with a bilateral trade value of 274.2 billion U.S. dollars last year.

Under the agreement, Chinese firms are able to borrow Korean won funds for trade settlement from domestic commercial banks, to which the PBOC will lend the Korean won funds through the currency swap line with the BOK, or vice versa.

Since 2009, the PBOC has signed 23 currency swap agreements worth 2.5 trillion yuan with foreign central banks to help maintain regional financial stability and facilitate bilateral trade and investment.

Those currency swaps serve as an alternative to the U.S. dollar and offer extra liquidity support to signee countries apart from their foreign reserves.

The PBOC said it will work closely with overseas monetary authorities, including the BOK, in the future to let currency swaps play a more positive role through the wider use of local currencies in bilateral trade and investment.

Chinese bank borrows first KRW funds from swap deal

A Chinese bank borrowed the first South Korean won (KRW) funds that came from the currency swap deal between Seoul and Beijing, the South Korean central bank said Friday.

China's Bank of Communications has borrowed a total of 400 million won (392,000 U.S. dollars) from the People's Bank of China (PBOC) to lend the funds to a China-based multinational company and a joint-venture company, according to the Bank of Korea (BOK).

The PBOC will receive the won funds from a loan facility that uses the currency swap line set up jointly with the BOK.

The two central banks signed an agreement in October 2011 to extend their currency swap deal for another three years, doubling the value of the contract to 360 billion yuan, or 64 trillion won (about 59 billion U.S. dollars).

The PBOC and the BOK agreed in December 2012 to use the swap line to support trade settlement in respective currencies for domestic companies.

Under the agreement, South Korean firms are able to borrow the renminbi funds for trade settlement from local banks, to which the BOK will lend the yuan funds secured through the currency swap line with the PBOC, or vice versa.

The Bank of Communications became the first Chinese bank that borrowed the South Korean won funds from the yuan-won swap deal.

South Korea has pushed to expand such deals with other nations. On Monday, the BOK inked an agreement with its Malaysian counterpart to support trade settlement in the won and the ringgit for respective local companies.

As of May, South Korea signed currency swap deals worth around 80.6 billion dollars, including contracts with China, the United Arab Emirates, Malaysia, Australia and Indonesia each worth 56 billion dollars, 5.4 billion dollars, 4.7 billion dollars, 4.5 billion dollars and 10 billion dollars each.

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