BEIJING China signed a bilateral currency swap agreement worth 150 billion yuan ($24.17 billion) with the Swiss central bank, which can invest up to 15 billion yuan in China's bond market.
The three-year swap, signed on Monday, will "provide liquidity support for bilateral economic and trade exchanges and help maintain financial stability," the People's Bank of China (PBOC) said in a statement on its website, www.pbc.gov.cn.
The swap deal will provide liquidity support for development of the offshore yuan market in Switzerland and will be extended if needed, the PBOC said.
The Swiss National Bank (SNB) is allowed to invest up to 15 billion yuan in China's interbank bond market under a quota given by the PBOC. "The SNB's foreign exchange reserves can thereby be diversified even further," the Swiss central bank said in a statement.
In June, senior Swiss officials touted the SNB's qualifications to be a hub of renminbi trading during a meeting with China's central bank governor Zhou Xiaochuan.
Competition is fierce among Europe's major financial centers to trade in China's currency. Frankfurt and Luxembourg are vying with London, the favorite of many analysts, and Switzerland is trying to muscle into the competition.
Analysts say London looks best placed to become Europe's main offshore yuan CNH= center, given its role as the world's biggest foreign-exchange hub.
In the past five years, China has promoted use of the yuan CNY=CFXS for trade and investment, and also as a reserve currency to help lower currency risks for Chinese companies and challenge the dollar's global dominance over the long term.
($1 = 6.2063 Chinese yuan)
(Reporting by China economics team; Editing by Richard Borsuk)