In June 2013, the United Kingdom was the first G7 country to establish an official currency exchange line with China.  According to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the path to the internationalization of RMB can be divided into three phases, first as a use for trade finance, then for investment and, in the longer term, as a reserve currency.  In August 2012, China and Taiwan signed a Memorandum of Understanding on a new cross-border currency, and in March 2013, the China Trust Commercial Bank was the first to issue RMB in the Taiwanese market (Formosa issue). In November, the CWB (Hong Kong) issued a formosa loan after continental banks were eligible.  While BSAs have been signed in the past to protect against liquidity constraints, Beijing has tackled the instrument for another purpose: the internationalization of the currency. In target markets such as Pakistan, China hopes to support RMB trade through currency recycling. Because Pakistan has a trade deficit with China, Pakistani exporters spend more renminbi than importers receive, depleting the country`s RMB reserves. Over time, this will ultimately reduce the potential for additional introduction of RMB due to illiquidity in the market. In theory, if Pakistan has sufficient incentive to continue using the RMB for cross-border trade, the Central Bank of Pakistan could use its credit line to exchange Pakistani rupees with the People`s Bank of China for RMB at an interest rate set under the swap agreement. The RMB150 billion bilateral currency exchange agreement, first signed in October, which allows central banks to buy the renminbi (RMB) and rubles (RUB) directly from both currencies instead of the US dollar, came into force on 29 December. Pakistan and Argentina are two of the few nations to have intercepted their BSAs, but not in the traditional sense.
In times of financial crisis, Both Pakistan and Argentina used the agreements to obtain RMB and convert them into USD on offshore markets. Since the 2007 financial crisis, central banks around the world have concluded a large number of bilateral currency exchange agreements with each other. These agreements allow a central bank of a country, the currency, usually its national currency, to exchange for a certain amount of foreign currency. The recipient central bank can then lend this currency on its own terms and risks to its national banks. Swaps with the U.S. Federal Reserve have been the main cross-border policy responses to the crisis and have helped alleviate potentially devastating dollar financing problems in non-U.S. countries. The banks. Since 2007, central banks in industrialized countries have also offered swap lines for a limited number of emerging countries. Because of the risks associated with swap lines, the Fed has been much more cautious to extend them to emerging economies than with other developed economies. The Fed has insisted on provisions allowing it to seize its assets from the New York Fed in the event of non-repayment.
At the end of this page, you can explore in detail the development of central bank currency swets through an interactive map. The introductory slideshow that follows shows you briefly how these agreements have evolved year after year with respect to central banks and the amount of funds involved.