Currency swap agreement signed between mainland, Macao

The People's Bank of China, the country's central bank, and the Monetary Authority of Macao signed a currency swap agreement of 30 billion yuan ($4.26 billion) on Thursday, aiming to maintain financial stability and support the economic and financial development of the mainland and the Macao Special Administrative Region (SAR).

According to a statement on the central bank's website, the agreement is valid for three years and can be extended upon mutual agreement.

Ding Meng, senior strategy analyst of Bank of China's Macao Branch, told the Global Times on Thursday that the agreement is important to promote the internationalization of the yuan and the construction of an offshore yuan market in Macao.

"The most important function of the currency swap agreement is to promote the use of the yuan in trade and increase its market liquidity," said Ding.

"Along with the increase of international trade in Macao, there may be a shortage of yuan supply in the special administration region. This may result in fluctuations in interest rates and exchange rates. However, the central bank can help ease market liquidity through the currency swap," Ding said.

Ma Ben, assistant professor of Capital University of Economics and Business, told the Global Times that the agreement can also help reduce the transaction costs involved in using foreign currencies, and facilitate trade and investment between the mainland and Macao.

In 2018, mainland-Macao trade reached $3.16 billion, an increase of 3.3 times over the past 20 years, according to the Ministry of Commerce on Thursday.

"In recent years, China has signed currency swap agreements with South Korea, Malaysia, Argentina, Iceland and other countries, with expanding scale. This is one of the important measures to promote the internationalization of the yuan, and also it reflects the common vision of these countries committed to de-dollarization," Ma noted.