China Promotes Currency Swaps, Urges Asian Countries To Push For IMF Reforms

The Central Bank Governor of China, Pan Gongsheng, has stated that his country will continue to promote currency swaps to strengthen monetary cooperation with Asian economies.

“Bilateral currency swaps can provide emergency liquidity support in times of turmoil in international financial markets and banking crises in some countries,” he said at the Boao Forum for Asia (BFA). Modelled on the World Economic Forum, the BFA brings together member nations from Asia both at the leadership and non-governmental level to discuss the pressing economic issues concerning Asia.

China first introduced bilateral swap lines during the 2008 global financial crisis, where it entered into an RMB local swap currency agreement with the Bank of Korea. Bilateral swap currency agreements as they avoid the need to trade in the US dollar and encourage the use of local currencies. Through this arrangement, South Korea gets RMB while China gets the South Korean won which Beijing has argued further facilitates trade.

A Reuters report quoted Pan as stating that China’s central bank has signed bilateral local currency swap agreements with the central banks and monetary authorities of 29 countries and regions, with the total size of about 4 trillion yuan ($553.49 billion). Pan also urged Asian nations to push for IMF reforms so their votes are better reflected.

“Asian countries can push all parties to reach a consensus on a new quota share formula as soon as possible, in order to lay the foundation for realizing quota share adjustment. The adjustment can ensure that the IMF is a rules-based institution that truly practices multilateralism,” Pan said.

The IMF quota is important as it determines the voting rights of the countries and the scale of financing they can receive in a crisis. China has long argued that the current quota system is biased against Asian countries and has urged them to seek reform.