Bank of England Governor Mervyn King and his Chinese counterpart Zhou Xiaochuan agreed to a three-year currency swap line to promote financial stability and aid trade between China and Britain.

The maximum value of the arrangement is 200 billion yuan ($33 billion), according to a statement published by the UK central bank on its website in London. The People's Bank of China put the sterling value at 20 billion pounds ($31 billion) in a statement on its website.

"The establishment of a sterling/renminbi swap line will support UK domestic financial stability," King said in the news release. "In the unlikely event that a generalized shortage of offshore renminbi liquidity emerges, the bank will have the capability to facilitate renminbi liquidity to eligible institutions in the UK."

The agreement puts the Bank of England first in a race among European central banks to establish swap facilities with China, allowing London to expand its ties with the world's second-biggest economy. The UK capital is the center of the world's $4 trillion-a-day market for foreign-exchange trading.

China has allowed businesses to settle foreign trade in yuan and signed swap agreements to promote the use of the currency in international trade and investment. It has also eased rules for foreign companies to invest in the country using yuan raised offshore and started direct trading with currencies including the yen as part of efforts to make the yuan a global currency.

Since cross-border trading of the yuan started in 2010, the proportion of China's trade settled in the currency has surged sixfold to 12 percent, according to DBS Group Holdings Ltd. The yuan's share of international payments rose to 0.74 percent in March from 0.25 percent in January 2011, Nathan Chow, a DBS economist in Hong Kong, wrote in an opinion article in Singapore's Sunday Times newspaper on Sunday.

"As the offshore market broadens and deepens simultaneously, the yuan will move up the ranks rapidly as a global payments currency," Chow wrote. "Ongoing interest-rate liberalization and other financial reforms will help Beijing realize its ultimate goal of making the yuan a reserve currency."

China already has currency-swap agreements with countries including Australia, South Korea and Malaysia. It has accords totaling about 1.8 trillion yuan, the Taipei-based Chung-Hua Institution for Economic Research said in a report in November. The Bank of England's chief cashier, Chris Salmon, said in January that the idea of London as a major yuan center "carries much force".

(China Daily 06/24/2013 page14)