MercoPress. South Atlantic News Agency

Brazil's Central Bank signs currency swap with People’s Bank of China

The BCB already has a similar agreement with the US Federal Reserve

Brazil's Central Bank (BCB) and the People’s Bank of China (PBoC) signed a currency swap agreement Tuesday worth R$ 157 billion (US$ 28 billion). The arrangement is valid for five years.

The move seeks to provide more liquidity to the financial market in times of need. Signing the documents were BCB President Gabriel Galípolo and his Chinese counterpart Pan Gongsheng.

The PBoC will receive Brazilian reais, crediting the amount equivalent to the Brazilian currency in dollars to a special deposit account opened in its name at the BCB. The money can only be moved as stipulated in the agreement.

In order to guarantee the economic and financial balance of the bonds, the BCB must observe the exchange rates for the two currencies charged on the domestic and international foreign exchange markets, as well as the interest and risk premiums on sovereign bonds (like government bond rates) on the domestic and global financial markets, Agencia Brasil explained.

The BCB also stressed in a statement that it intends to sign more agreements with other countries. “Such currency swap agreements have become common among central banks, especially since the 2007 crisis,” it mentioned.

The BCB already has a similar agreement with the US Federal Reserve. Known as the Foreign and International Monetary Authorities Repo Facility (FIMA), the agreement allows the BCB to access US dollars by offering repo operations (public securities used to regulate the amount of money in circulation in the economy). In return, the BCB receives US Treasury bonds.

According to the BCB, the People’s Bank of China has 40 similar currency swap agreements with monetary authorities in countries such as Canada, Chile, South Africa, Japan, the UK, and the European Central Bank.

Galípolo is joining President Luiz Inácio Lula da Silva on his trip to the Asian country. In addition to Tuesday's swap, Galípolo is expected to take part in a seminar on China’s international public bonds, known as panda bonds, later this week. (Source: Agencia Brasil)