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A step toward RMB internationalization

By Bob Gay | China Daily | Updated: 2013-10-16 07:25

The European Central Bank's announcement of a new $350 billion swap agreement with the People's Bank of China on Oct 10 comes at a curious time.

Namely, we suspect that the current dysfunction in Washington may have accelerated the ECB's discussions on the matter and may have tipped the scales in favor of early approval. We tend to think of China's push for swap agreements with other central banks as a key step toward the internationalization of the renminbi. These swap agreements greatly facilitate the widespread use of the RMB in everyday trade transactions.

In particular, if a central bank has ready access to RMB directly from the PBOC, then local banks are much more willing to offer trade financing in RMB to local companies, thereby enhancing its use. For Chinese companies, the direct swap agreements and settlement in RMB reduces the costs of using an intermediary currency such as the US dollar.

A step toward RMB internationalization

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