The Bank of Japan signed an accord Thursday with the People’s Bank of China for a bilateral yen-yuan swap arrangement aimed at ensuring currency market stability through supplying short-term liquidity, BOJ officials said.
BOJ Gov. Masaru Hayami and People’s Bank of China Gov. Dai Xianglong signed the agreement at the BOJ.
The agreement enables the central banks to provide each other with up to the equivalent of $3 billion in yen or yuan as short-term liquidity in the event of a temporary shortage of foreign reserves, the BOJ said.
However, as both central banks have ample foreign reserves, there is little likelihood of the currency swap being invoked, financial analysts said.
“The Bank of Japan believes that the agreement also serves the purpose of enhancing mutual cooperation between the two central banks,” the BOJ said in a statement.
The Association of Southeast Asian Nations, China, Japan and South Korea agreed to extend the currency swap network among members as a “firewall” against speculative attacks on their currencies when their finance chiefs met in Chiang Mai, Thailand, in May 2000 after the 1997-1998 Asian financial crisis.
The currency swap scheme, known as the Chiang Mai Initiative, is aimed at linking the international reserves of the 10 ASEAN countries with those of the three dialogue partners through a set of bilateral pacts to prevent further currency crises.
Under the multilateral accord, Japan has made bilateral currency swap arrangements with South Korea, Thailand, Malaysia and the Philippines.
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