Brazilian and Chinese central banks sign currency swap deal
In a bid to provide more liquidity to the financial market in times of need, the Central Bank of Brazil (BC) and the People’s Bank of China (PBoC) on Tuesday (May 13) signed a currency swap agreement. The document was signed in Beijing by BC President Gabriel Galípolo and his Chinese counterpart Pan Gongsheng.
According to a resolution by the National Monetary Council (CMN), the outstanding value of the operations must not exceed BRL 157 billion, and they will be valid for five years. The PBoC will receive Brazilian reals, crediting the amount equivalent to the Brazilian currency in dollars to a special deposit opened in its name at the BC. The money can only be moved as stipulated in the agreement.
In order to guarantee the economic and financial balance of the bonds, the BC must observe the exchange rates for the two currencies charged on the domestic and international foreign exchange markets, as well as the interest and risk s on sovereign bonds (like government bond rates) on the domestic and global financial markets.
Similar initiatives
In a statement, the BC stressed that it intends to sign more agreements with other countries similar to the one signed with China’s PBoC. “Such currency swap agreements have become common among central banks, especially since the 2007 crisis,” the note reads.
The BC already has a similar agreement with the US Federal Reserve. Known as the Foreign and International Monetary Authorities Repo Facility (FIMA), the agreement allows the Brazilian Central Bank to access US dollars by offering repo operations (public securities used to regulate the amount of money in circulation in the economy). In return, the BC receives US treasury bonds.
According to the BC, the People’s Bank of China has 40 similar currency swap agreements with monetary authorities in countries such as Canada, Chile, South Africa, Japan, the UK, and the European Central Bank.
Engagements
Galípolo is accompanying President Lula on his trip to the Asian country. As well as g the swap agreement on Tuesday, the president of the Central Bank is expected to take part in a seminar on China’s international public bonds, called panda bonds, on Thursday (15).
