Central banks of Eurozone and China announced on Thursday that they have successfully tested their existing bilateral currency swap arrangement.
The bilateral currency swap serves as a backstop facility to address sudden and temporary disruptions in the renminbi market due to liquidity shortages in euro area banks, the European Central Bank said in a statement.
Liquidity providing arrangements contribute to global financial stability and the arrangement with the People’s Bank of China was a recognition of the rapidly growing bilateral trade and investment between the euro area and China, the ECB added.
The currency swap between the ECB and the Chinese central bank was established in October 2013 with a maximum size of EUR 45 billion and CNY 350 billion.
The ECB carries out tests of facilities such as currency swaps to ensure operational readiness when needed. Two tests were conducted in April and November this year that provided symbolic amounts of euro and renminbi liquidity respectively. These tests also involved a limited number of Chinese and Eurosystem counterparties.
“The scheduling of such tests is not linked to market conditions and should not be seen as signalling any intention of the central banks to request funds from each other to provide counterparties with liquidity in the respective currency,” the ECB noted.
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