Japan, China sign US$3 billion yen-yuan swap agreement
Japan, China sign US$3 billion yen-yuan swap agreement
Yoko Nishikawa, Reuters, Tokyo
Japan and China on Thursday signed a yen-yuan swap agreement as part of an Asian-wide currency safety net designed to boost regional cooperation and ward off future financial crises.
The Japan-China scheme, however, will be primarily symbolic because neither Japan nor China are likely to face liquidity or balance of payment crises in short term.
The scheme, worth US$3 billion, is the sixth such pact under the Chiang Mai Initiative (CMI), which aims to forge closer monetary ties by creating a network of central bank currency swaps among the 10-member Association of Southeast Asian Nations plus Japan, China and South Korea (ASEAN+3).
The idea of the swaps is to make foreign-exchange reserves available at short notice to a member of the group whose currency comes under sudden speculative attack, as happened to Thailand in 1997 when the baht came under severe selling pressure.
Chinese central bank governor Dai Xianglong, speaking to a small group of journalists through a Japanese interpreter, said it was hard to imagine a situation in which China and Japan would need to use the swap scheme.
Japan and China are the world's two biggest holders of external reserves.
Japan's foreign reserves, the world's biggest, stood at $403.5 billion at the end of February, while China's has more than $200 billion in foreign reserves.
Moreover, the yuan is not convertible on the capital account, largely reducing China's vulnerability to the sort of speculative attacks for which the CMI is designed.
But Japanese officials consider China's participation in the CMI important for promoting regional cooperation after Beijing relaxed its opposition to a Japanese call in 1997 for an Asian Monetary Fund, an idea fiercely opposed by the United States.
Hayami said earlier this week that the deal would enhance cooperation between the two central banks in the year that also marks the 30th anniversary of the restoration of diplomatic ties between Tokyo and Beijing.
Japan is involved in four of the five bilateral CMI swaps signed so far -- with South Korea ($2 billion), Thailand ($3 billion), the Philippines ($3 billion) and Malaysia ($1 billion).
The fifth, worth $2 billion, was signed in December between China and Thailand, and Dai said China would also set up a pact with South Korea.
Unlike other bilateral swap deals, the China-Japan scheme will be denominated in yen rather than dollars. Japanese officials have said that was China's choice because Beijing already has enough dollar-denominated foreign reserves.
Japan has only one other yen-denominated currency swap line, with the European Central Bank, but that facility is mainly for currency intervention purposes and was used in September 2000 when the ECB and the BOJ intervened to prop up the euro.
Japanese officials visited Singapore several weeks ago to negotiate a currency swap deal under the CMI umbrella. Tokyo, a driving force for the network, has also expressed interest in negotiating a deal with Indonesia in the future.
ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.