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ECB and People's Bank of China test bilateral currency swap

The European Central Bank (ECB) has successfully tested its bilateral currency swap operations with the People's Bank of China (PBC). 27 Nov 2015

A currency swap allows a central bank to exchange its domestic currency for a foreign currency. The recipient bank can then lend this foreign currency on to its domestic banks, on its own terms and at its own risk.

The current arrangement was set up in October 2013, with a maximum size of €45 billion and 350 billion yuan (€51.6 billion). The recent test, along with a previous test in April, used only 'symbolic' amounts of currencies, the ECB said.

"The tests were successful and demonstrated the ECB’s and the PBC’s operational readiness to activate the swap if needed on the basis of bilaterally agreed operational procedures," the ECB said.

Having a functioning swap arrangement in place is important for global financial stability, the ECB said.

The tests were only run to check "operational readiness" and do not signal that the banks are about to activate a swap, the ECB said.

The Bank of England announced in October that it had agreed to renew its existing currency swap agreement with the PBC for a further three years. The maximum value of the swap line was increased to 350bn yuan "to reflect the continuing growth of renminbi trading in London", the Bank of England said.