Since 2009, China has signed monetary swap agreements with many countries and regions such as Argentina, Belarus, Brazil, Canada, the ECB, Hong Kong, Iceland, Indonesia, Malaysia, Singapore, South Korea, Thailand, the United Kingdom, Uzbekistan and Tajikistan.     Renminbi deposits in HK have gradually increased from $12 billion in 2004 to $59 billion in 2009.  In October 2008, Timothy Geithner, then president of the New York Fed, noted that Europe had “a banking system that could become very, very large relative to GDP, with huge monetary asymmetries and no plans to cover the liquidity needs of their banks in dollars if we are faced with such a storm.” While swap lines prevented the sale of assets and other measures that would have aggravated the crisis, the fact that swap lines now appear permanent could effectively stimulate the growth of these “enormous monetary asymmetries”. Banks will now expect their central banks to provide them with foreign currency if market difficulties make it more difficult to obtain this financing on private markets, and those lending to foreign banks will continue to do so in the hope that they will be repaid in times of crisis with funds borrowed by the Central Bank. The existence of swaps therefore makes the banks` dependence on short-term financing even more important and the requirement that foreign banks hold high-quality, liquid local money assets. On 21 July 2014, the People`s Bank of China and the Swiss National Bank signed a bilateral currency exchange agreement.  At first, the ECB stated its readiness to make available to Hungary, Latvia and Poland only through pension transactions of euro-denominated securities, in which bonds are held as collateral rather than currency, but which have ultimately extended a normal trading line to Hungary. Switzerland has also made Swiss francs available to Poland and Hungary for euros. Many households in Poland and Hungary had taken out foreign-currency-denominated mortgages as a result of lower interest rates. The demand for Swiss francs and euros from the Hungarian and Polish banks that provided the loans increased the cost of credit in these currencies; Swap lines were supposed to ease the upward pressure on euro and franc interest rates. How bilateral currency exchange agreements workAl early in a swap, Central Bank 1 sells a certain amount of currency A to central bank 2 in exchange for currency B at the dominant exchange rate. Central Bank 1 agrees to repurchase its currency at a given future date at the same exchange rate. Central Bank 1 then uses the currency B it obtained through the swap to lend to local banks or businesses.
The central bank 1 which requested the activation of the swap pays interest to the central bank 2. “The Chilean commercial bank, which holds a banking licence in Hong Kong, can, for example, open a Nostro account with the Bank of China (Hong Kong), the official clearing bank of the RMB. Otherwise, they will be able to work with another bank in Hong Kong to carry out such a transaction. These transactions can be made before the central bank signs the swap line with the PBoC. We believe that China will continue to conclude more of these swap agreements with other central banks.