Japan to agree on FX swap deal with China
Japan to agree on FX swap deal with China
Yoko Nishikawa, Reuters, Tokyo
Japan and China are in the final stage of talks on a yen-yuan
swap deal as part of a fledgling Asia-wide currency safety net,
Japanese officials said on Tuesday.
They hope to agree on the scheme in the next few weeks.
The bilateral swap deal would be the fifth such pact signed by
Japan as part of an ambitious plan, known as the Chiang Mai
Initiative, for a regional web of currency swaps designed to ward
off financial crises like the one in 1997 that plunged much of
the region into recession.
"We are in the final stage of the talks," a Bank of Japan
(BOJ) official, who is close to the negotiations, told Reuters.
He said some technical legal issues needed to be finalized but
both sides had agreed on the basic framework.
The swap line will be for around US$3 billion, the size of
similar deals that Japan has signed with Thailand and the
Philippines, several Japanese officials said.
Japan has already signed a $2 billion swap deal with South
Korea and a $1 billion scheme with Malaysia under the Chiang Mai
Initiative (CMI), named for the northern Thai resort where it was
agreed by finance ministers from 13 Asian countries last year.
China is also talking to South Korea and Thailand about
setting up swap lines.
Unlike Japan's other swaps under the CMI, the China scheme
will be denominated in yen, not dollars.
China opted for a yen-yuan pact because it already has plenty
of dollars in its foreign reserves, according to Japanese finance
ministry officials.
At present, Japan has only one yen-denominated currency swap
line, with the European Central Bank. That facility is designed
mainly for currency intervention purposes and was tapped in
September 2000 when the ECB and the BOJ intervened to prop up the
euro.
The Japan-China swap pact is primarily symbolic as neither
Japan nor China is expected to experience liquidity or
balance-of-payment problems in the foreseeable future.
Japan has the largest foreign reserves in the world, totalling
$397 billion, while China's reserves reached $190 billion at the
end of August.
Moreover, the yuan is not convertible on the capital account,
vastly reducing China's vulnerability to the sort of speculative
attack for which the CMI is designed.