CHINA and the European Union signed a currency swap agreement to boost trade and financial stability in a move that also marks a landmark step for the yuan’s internationalisation.

The three-year swap line with a maximum value of 350 billion yuan ($57 billion) is the largest the People’s Bank of China has signed with a foreign central bank outside of Asia, higher than the 200 billion yuan agreement with the Bank of England.

The People’s Bank of China said in a statement on last Thursday that the deal can help provide liquidity support for the yuan market in Europe and promote overseas use of the renminbi. It is also beneficial for facilitating trade and investment.

Experts said that the agreement with the European Central Bank is a significant step forward for the internationalisation of the yuan and is a reflection of the increasing demand for the Chinese currency in financial transactions in the eurozone.

”The amount of the currency swap is significant, and it is an important step to develop the renminbi transactions in the euro area,” said Philippe Mongars, deputy director of the market operation department at the Bank of France.

”All the banks based in the euro area will benefit from it and we see it as a backstop to maintain confidence in the Chinese currency in the euro area,” he said.

”What is also important to bear in mind is that the arrangement is bilateral so it is also a reassurance for banks in China when they need to access the euro,” he added.

The European Central Bank said in a statement that the agreement has been established in the context of rapidly growing trade and investment between the eurozone and China. The swap is intended to serve as a backstop facility to ensure the yuan’s liquidity and financial stability in the eurozone.

”The agreement showed that the ECB is very interested in contributing strongly to the internationalisation of the renminbi,” said Arnaud de Bresson, chief executive of Paris Europlace, a professional association that promotes Paris as an international financial centre.

De Bresson said that the swap is likely to significantly boost the yuan-denominated bond market in Europe and will help consolidate Paris’ position as a major platform for yuan trading and transactions in the eurozone.

Paris played a leading role in pushing the European Central Bank to sign the agreement as France has been keen on developing its capital into a major yuan trading centre.

Yuan deposits in Paris amount to 10 billion yuan, making the French capital the second-largest pool for the Chinese currency in Europe after London. Nearly 10 per cent of Sino-French trade is settled in yuan, according to the French central bank.

Michael Moore, a professor of Finance at Warwick Business School in the UK, said that the swap reflects China’s ambition to raise the international profile of its currency.

”If China’s aim is to make the yuan an international currency of choice, this is a good start,” he said, noting that both sides need to replenish the deal to meet market demand.

Since 2008, China has signed currency swap agreements with 23 regions and countries with the total value reaching 2.48 trillion yuan, according to the People’s Bank of China.