Russia, China seal CNY 150bn currency swap deal

The central banks of Russia and China earlier today announced an agreement for Ruble-Yuan currency swaps, with a total value of CNY 150 billion.

The agreement is for three years with an option for eventual extension, with both countries now provided with access to liquidity within each other’s currencies without the need to tap the international financial markets. In addition, the deal brings the potential for improved direct investments and bolstered trading ties between the two countries. This has been further bolstered by today’s announcement that Moscow Exchange has signed an agreement with the Bank of China to collaborate on aspects relating to the ruble and yuan.

The deal has been sealed as Russia seeks extra means of securing the stability of its financial system, given the slump in the value of the Ruble against the US dollar and the Euro over the past month. At the same time, China has been pushing hard over the past couple of years to bolster the role of the renminbi in the international financial markets. This dynamic goes some way toward indicating the reasons for the volume of currency swap deals that the People’s Bank of China has clinched. Among the biggest deals with regard to this is the agreement with the European Central Bank from October 2013, valued at $57 billion.

Quite clearly China’s moves are bringing fruit, as the latest SWIFT report which relates to August 2014, showed that the RMB ranked seventh in the chart of global payments currencies and accounted for 1.64% of global payments, up from 1.57% in July 2014. Moreover, over the past two years RMB payments worldwide have nearly tripled in value, SWIFT says. Furthermore, a great number of Russian FX firms can attribute their large volume figures to successful acquisition of clients from China.

Russian officials hope that the currency swap deal will mark the first step in a wider array of efforts to bolster the economic ties between the two countries. Alexander Ivanov, deputy chairman at Vnesheconombank (VEB), told journalists over the past weekend that Russian companies aim to benefit from Chinese financial and capital markets, but for that they need more relaxed rules to access those markets.

The official announcement by the Central Bank of Russia on the currency swap deal can be viewed here

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