12/18/14

Permalink Russia may seek China help to deal with crisis

Russia could fall back on its 150 billion yuan (HK$189.8 billion) currency swap agreement with China if the rouble continues to plunge. If the swap deal is activated for this purpose, it would mark the first time China is called upon to use its currency to bail out another currency in crisis. The deal was signed by the two central banks in October, when Premier Li Keqiang visited Russia. "Russia badly needs liquidity support and the swap line could be an ideal tool," said Bank of Communications chief economist Lian Ping. The swap allows the central banks to directly buy yuan and rouble in the two currencies, rather than via the US dollar. Two bankers close to the People's Bank of China said it was meant to reduce the role of the US dollar if China and Russia need to help each other overcome a liquidity squeeze. China has currency swap deals with more than 20 monetary authorities around the world. Swaps are generally used to settle trade. "The yuan-rouble swap deal was not just a financial matter," said Wang Feng, chairman of Shanghai-based private equity group Yinshu Capital. "It has political implications as it is a sign of mutual trust."

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