Switzerland, China agree to $17.5-bn currency swap

The central banks of Switzerland and China have entered into a currency swap agreement, boosting the forward march of yuan to the role of a tradable currency.

Under the currency swap, the Swiss central bank, Bank of Nova Scotia, and China's central bank, the Peoples' Bank of China will exchange currency for a total of $17.5 billion.

The agreement, signed in Beijing on Monday, marks ''an important step'' in the development of a market for yuan in Switzerland, the Swiss central bank BNS said.

The agreement, while highlighting steps towards international use of the yuan, ensures that Swiss francs will be available in China and that yuan, also known as renminbi, will be supplied to financial centres in Switzerland.

The agreement permits the two central banks to buy up to a maximum of 150 billion yuan or 21 billion Swiss francs (17.3 billion euros, $23.4 billion).

The deal was signed by the governor of the People`s Bank of China Zhou Xiaochuan and BNS president Thomas Jordan.

As part of the agreement, BNS will also be able to use part of the money to invest in the Chinese bond market.

The People's Bank of China has fixed a current quota of 15 billion yuan or about 2.0 billion Swiss francs for invest on the Chinese interbank bond market.

In a separate statement, the Swiss finance ministry welcomed the agreement with China, saying it showed that Switzerland was playing an increased role in the internationalisation of the Chinese currency.

China and Switzerland have signed a free-trade agreement, which takes effect in July and the currency swap is the first such agreement between China and a European country.

China is the sixth-biggest export market for Switzerland, and the fourth supplier to it. The agreement will give Switzerland an upper hand in dealing with China compared with other European nations.

Switzerland is not a member of the European Union but has close trading relations with it.