The Reserve Bank says it now has the capacity to borrow up to NZ$5 billion from the People's Bank of China, if necessary, to settle deals between Chinese and New Zealand businesses.
The central bank says it and the People’s Bank of China have established a reciprocal currency arrangement, or swap line, to support the settlement in Chinese Renminbi (RMB) of trade transactions between New Zealand and China. The size of the swap facility is RMB 25 billion, or NZ$5 billion. It has a three year maturity which may be extended if both parties agree.
"The facility gives the Reserve Bank the capacity to borrow RMB for use in rare situations where financial market disruption makes it difficult for businesses to access RMB to settle transactions with Chinese businesses," the Reserve Bank's Deputy Governor Grant Spencer said.
Spencer said the deal followed recent actions by the People's Bank of China to facilitate the settlement of transactions conducted by firms in RMB. Eight other countries, mainly in Asia but not including Australia, already have swap facilities in place with the Chinese central bank.
“While there is no need to use the facility right now, it is useful to have this capacity if markets were ever to become dysfunctional. In addition the signing of this swap line contributes to building the China-NZ relationship,” Spencer said.