China announced that it signed a currency swap agreement with the European Central Bank, according to CNBC. It is one of the largest deals for China. The agreement allows the ECB to access up to 350 billion yuan, while the People's Bank of China will be able to get as mush as 45 billion euros. A currency swap is a deal between two instututions (in this case, central banks) that take on an obligation to sell to the counteragent a local currency for a fixed price at any moment during the period of validity. This deal is not the first one for China’s central bank. Earlier this year, the regulator agreed to exchange the currency with the United Kingdom, Brazil and several other countries. Thus, the news agency said, China took one more step to making the currency convertible.
Despite such an action, the Chinese central bank still takes a tight control over the yuan exchange rate, not letting it rise or fall by more than 1%. China is worried that sharp fluctuations of the yuan value can destabilise the economy. The biggest concern of Beijing is unregulated revaluation.
In addition, the strict control is caused by the rising popularity of the yuan around the globe. Even though the yuan is not a convertible currency, it is still in the top 10 of the most actively traded monetary units.
