The mainland has doubled its currency swap arrangement with Hong Kong to 400 billion yuan (HK$490 billion) - a move that will consolidate the city's role as a major offshore yuan trading centre.
The new agreement between the People's Bank of China (PBOC) and the Hong Kong Monetary Authority (HKMA) will supersede the accord signed in January 2009 for another three years.
Essentially, it gives Hong Kong greater access to the mainland central bank's yuan pool and will encourage more businesses to use the yuan as an invoicing currency. This will in turn help Beijing to make the currency global.
The move comes at a time when the offshore yuan market has been hit by global financial volatility since late September. Standard Chartered bank economists attribute the volatility partially to the exhaustion of the trade conversion quota for offshore yuan.
The latest move would produce a 'useful psychological and potential physical cushion', market experts said.
HKMA chief executive Norman Chan Tak-lam yesterday said the new agreement 'is crucial in helping us to provide liquidity, when necessary, to maintain the stability of the offshore renminbi market in Hong Kong'.
The swap line with Hong Kong is the biggest among the dozen that Beijing has signed with other economies since 2008 to promote the use of the yuan.
