"The swap arrangement has been established in the context of rapidly growing bilateral trade and investment between the euro area and China, as well as the need to ensure the stability of financial markets"
- The European Central Bank
Amid growing trade between Europe and China, ECB's authorities and representatives of the People's Bank of China claimed their intention to launch a bilateral currency swap agreement to bolster access to trade finance and strengthen the global use of the Yuan. The swap line will be established for a three-year period and is expected to have a maximum size of 350 billion yuan, when Chinese currency is provided to the European Central Bank and then 45 billion euros will be given to the PBOC. Currently the ECB has swap agreements with the U.K., Canada, Switzerland and United States and they all are serving as a backstop liquidity facility, while the new one will reassures European banks to the continuous provision of the Renminbi. Earlier this year, the PBOC Governor Zhou Xiaochuan pledged to expand cross-border use of the Yuan.
Meanwhile, European Central Bank Governing Council member Jens Weidmann claimed there is no need in new LTRO and stressed out the ECB will not deploy them just because a spike in market interest rates. Weidmann is known as the most hawkish ECB member. Amid growing speculations of a possible withdrawal of Fed's stimulus, market rates moved higher during the summer, while the ECB has already pledged to constantly monitor them, as a sustained rise could threaten the region's fragile economic recovery.
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