PBOC uses won for 1st time in deal
Print Edition
CHINA’S central bank yesterday lent 400 million Korean won (US$390,000) to support trade settlement financing for Chinese importers of goods from South Korea, marking its first use of foreign currency under currency swap agreements.
The small symbolic move, announced by the People’s Bank of China on its website, marks a shift in the world’s second-largest economy, where policy-makers hope enterprises will increase the use of the yuan and other alternative currencies to the US dollar in trade and investment settlement.
A Chinese bank borrowed the first won-denominated funds under the currency swap line between the PBOC and the Bank of Korea, the central bank, then granted the won-denominated loans to a Chinese company to make payments for South Korean imports.
Under the currency swap deal, the PBOC’s lending in the won yesterday is equivalent to some 2.4 million yuan (US$390,000).
“The first use of the won funds by the PBOC has boosted cooperation under the bilateral currency swap agreement,” the PBOC said in a statement, adding that Chinese and South 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 South Korea’s largest trading partner, with bilateral trade worth US$274.2 billion last year.
Under the agreement, Chinese firms are able to borrow won for trade settlement from domestic commercial banks, to which the PBOC will lend the won 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 US dollar.
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