January 12, 2016 / 11:47 AM / in 3 years

BOJ, PBOC in talks to resume bilateral FX swap line: sources

A Chinese national flag flutters outside the headquarters of the People's Bank of China, the Chinese central bank, in Beijing, April 3, 2014. REUTERS/Petar Kujundzic

TOKYO (Reuters) - The Bank of Japan and the People’s Bank of China are negotiating on a resumption of a bilateral currency swap arrangement in case of a financial crisis, sources with knowledge of the matter told Reuters on Tuesday.

The behind-the-scenes negotiations come amid global financial turmoil stemming from a U.S. interest rate increase, which led to a devaluation of China’s yuan and the collapse in oil and commodity prices at the beginning of this year.

It was unclear which side has initiated the negotiations but the currency swap is seen aimed at providing a safety net for Japanese banks operating in China and Chinese businesses in need of the yen currency in case of a financial crisis.

The bilateral currency swap was originally launched in March 2002 as part of multilateral currency swap lines known as the Chiang Mai Initiative, which was established in response to the Asian financial crisis in the late 1990s.

The bilateral swap line has not been renewed since it expired in September 2013 due to a deterioration in the Sino-Japanese relationship over territorial disputes and Japan’s wartime history.

Reporting by Yoshifumi Takemoto; Writing by Tetsushi Kajimoto; Editing by Robert Birsel

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