cnbc.com / By Katy Barnato / Thursday, 10 Oct 2013 | 8:33 AM ET
The foreign exchange (FX) swap—an agreement to exchange one currency for another at a set rate at a certain time in the future—will have a maximum size of 350 billion yuan ($57.2 billion) and 45 billion euros ($60.9 billion) and will be valid for three years.
“From the perspective of the euro system, the swap arrangement is intended to serve as a backstop liquidity facility and to reassure euro area banks of the continuous provision of Chinese yuan,” said the European Central Bank in a news release.
Benefits of FX swap agreements include improving liquidity for currencies outside the domestic market, helping ensure the stability of financial markets. Plus, there has been a strong growth in China-European trade and investment flows, with Europe as a whole accounting for 14 percent of China trade last year.
The euro zone deal is the latest in a series of currency swaps China has signed this year and last. Recent major pacts include one struck with the U.K. in June, with a maximum value of 200 billion yuan.
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