The Central Bank of Russia and the People’s Bank of China have agreed upon a draft document on national currency swaps. It will provide Russian businesses with almost unlimited access to the renminbi, while their Chinese counterparts will be able to use the ruble in trade settlements. Experts claim that this agreement will boost trade between the two countries and facilitate bilateral payments.
So far, it does not contain details on the timing and volume of currency swaps. For context, currency swaps are deals suggesting a simultaneous purchase and sale of identical amounts of one currency for another. Analysts are estimating the demand for such a financial instrument to determine its financial performance.
Russia’s regulator says that this document is an additional argument in favor of financial stability and is an opportunity to obtain liquidity in critical situations.
Taking this fact into account, experts predict an increase in trade between Russia and China and tighter economic relations.
The move followed after Russian President Vladimir Putin speaking at a press briefing in Shanghai stressed the importance of creating new tools for managing mutual Russian-Chinese foreign exchange reserves. According to the president, these mechanisms will help make the ruble and yuan more resilient and contribute to better stability of the global financial architecture.
However, Russia is not the only country China has set up bilateral currency swap lines with. It signed currency swap agreements with Latin American and Asian countries. It also established direct currency trades with the UK and Singapore. China signed a 350 billion yuan currency swap agreement with the European Union as well.
