China, KL sign $1.5b currency swap Deal

China, KL sign $1.5b currency swap Deal

Dow Jones, Beijing

China and Malaysia have signed a currency swap agreement worth US$1.5 billion, the People's Bank of China announced Wednesday, taking a further step in the creation of an Asian-wide defense against future financial crises.

The statement posted on the central bank's Web site said the agreement allows the People's Bank of China to offer Malaysia up to $1.5 billion in currency support if required.

Such bilateral swap deals are part of Asian countries' efforts to strengthen cooperation and guard against possible currency crises in the region through bilateral currency pacts.

China has already signed similar agreements with Thailand, Japan and South Korea. When completed, the network of swap arrangement will encompass Japan, China and South Korea and the 10-member Association of Southeast Asian Nations.

The agreement is known as the Chiang Mai initiative, named after the Thai city which hosted the ASEAN plus 3 meeting in which the scheme was originally approved.

ASEAN plus 3 countries began considering potential defenses against regional currency slumps after the 1997-98 financial crisis. The currency swap initiative is expected to lessen Asia's reliance on international bailouts in the event of a similar crisis in confidence.

ASEAN groups Singapore, Malaysia, Thailand, the Philippines, Indonesia, Brunei, Vietnam, Laos, Myanmar and Cambodia.

The latest agreement between China's and Malaysia's central banks "reflects China's efforts to promote sustained development of financial cooperation and improve the financial stability in the Far East region," the central bank statement said.