SINGAPORE, July 23, 2010 (AFP) - The central banks of Singapore and China have signed a bilateral currency swap agreement likely to boost the internationalisation of the yuan, a press statement said Friday.
"The People's Bank of China (PBC) and the Monetary Authority of Singapore (MAS) today announced the establishment of a bilateral currency swap arrangement," said a MAS statement issued after a meeting in Beijing.
Financial institutions in Singapore and their customers will be provided with Chinese yuan financing for trade and direct investment through the swap, MAS stated.
"The arrangement is a key pillar of cooperation between the PBC and the MAS and serves to promote bilateral trade and direct investment for economic development of the two countries."
Lasting for three years and extendable by mutual agreement, the swap will provide Chinese yuan liquidity of up to 150 billion yuan and Singapore dollar liquidity of up to 30 billion dollars -- about 22 billion US dollars.
The deal would also "facilitate the internationalisation of the Chinese yuan," the statement said.
The agreement "would not only strengthen Singapore's economic and investment linkages with China but also help to maintain our role as an international financial centre," it stated.
Song Seng Wun, a regional economist at CIMB-GK Research in Singapore, said the agreement reflected the strong financial relations between the two economies, which will be among the world's fastest growing this year.
"If there is a crisis of confidence in each other's currency, the other can come in to help," Song added, but stated the chances of that happening were low.