China Swap Agreements

Since the 2007 financial crisis, swaps have been used by central banks to raise foreign currency, increase reserves and lend to domestic banks and companies. While the terms of swap arrangements are intended to protect the two central banks participating in the swap against losses due to fluctuations in monetary values, there is some risk that a central bank will refuse or be unable to comply with the terms of the arrangement. This is why lending through currency swaps is an important sign of trust between governments. But it can also be a sensitive subject of domestic policy; Lawmakers in the United States, and even public commentators in China, have raised concerns about the risk to their respective central banks in stretching swap lines to certain nations. The Scandinavian economies have made small euro swap lines available to the surrounding emerging countries to support the financial stability of these countries. The Central Bank of Sweden has agreed to make the euro available to the central banks of Latvia, Estonia and Iceland. Norway supplied the euro to Iceland, Denmark provided euros to Iceland and Latvia. Sweden and Denmark`s loans to Latvia were bridge loans “to support financial stability in Latvia until the IMF programme for Latvia is adopted”. About 80% of the Latvian banking system and 90% of the Estonian banking system are owned by banking groups based in Sweden, Norway and Denmark, so financial instability in Latvia or Estonia would have led to takeovers in Scandinavia. Since 1952, Iceland has cooperated with Sweden, Norway and Denmark through the Nordic Council, an interparliamentary body; During the financial crisis, the Nordic countries provided $2.5 billion in loans to Iceland and swap lines were a natural complement. In October 2008, the Fed expanded swap lines to Brazil, Mexico, South Korea and Singapore. How were these countries selected from the many countries that applied for them? Since 2009, China has signed currency swap agreements with many countries and regions such as Argentina, Belarus, Brazil, Canada, the ECB, Hong Kong, Iceland, Indonesia, Malaysia, Singapore, South Korea, Thailand, the United Kingdom, Uzbekistan and Tajikistan. [11] [12] [13] [14] Renminbi deposits in Hong Kong gradually increased from 12 billion yen in 2004 to 59 billion yen in 2009.

[2] If both companies enter into a foreign exchange swap, the nature of the interest is also determined on the basis of the contract. They shall also decide on the due date on which undertakings shall exchange capital. . . .

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