The Swiss National Bank and the People’s Bank of China have struck a bilateral currency swap agreement, a move aimed at boosting trade and investment between the two countries. Moreover, this step could make Switzerland’s an offshore hub for trading the renminbi.
The Swiss and Chinese central banks said that the three-year agreement will allow them to buy and sell their currencies up to 150 billion yuan, or 21 billion Swiss francs ($23.4 billion). The deal also will enable the SNB to buy up to 2 billion francs in Chinese bonds. That will help Switzerland diversify its forex reserves, which have risen to almost 450 billion Swiss francs.
The Zurich-based central bank said the agreement will further strengthen cooperation between it and its Chinese counterpart and is a "key requisite for the development of a renminbi market in Switzerland."
The Swiss Department of Finance welcomed the agreement, saying it is crucial for expanding trade in yuan in Switzerland and that it highlights the role played by the country in expanding the global use of the Chinese currency.
The deal also means that it will help the SNB to diversify its reserves of foreign currency, which have bumped up to about 70%. Experts note an increased use of the renminbi, even despite significant limitations by the Chinese regulator.
Challenging the hegemony of the U.S. dollar in international trade, the yuan has become the second-most used currency in global trade finance and ninth-most-used currency for payments globally. Daily yuan transactions surged to $120 billion in 2013 from $34 billion in 2010. According to HSBC, all seven countries surveyed over two years said they have boosted the use of yuan in their transactions. Interestingly, the most active yuan users are Germany, the U.S., and Hong Kong.
