China won't suffer from yuan-rouble swap
china.org.cn / chinagate.cn by Xu Qiyuan, January 7, 2015 Adjust font size:
Did China give money away in the recent yuan-rouble swap? To answer this question, we should first understand that this deal was different from the traditional currency swaps that aim to address liquidity needs in the short term.
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In 2013, China's direct investment in Russia exceeded US$1 billion, 4,500 times the amount of Russia's investment in China. |
A case in point is South Korea's currency swap deal with the United States. In September 2008, South Korea was faced with mounting pressures in its foreign exchange market due to the mounting outflow of dollars. To stabilize the market, Seoul signed a US$30-billion swap deal with Washington in October, and it activated the deal and spent US$4 billion in the market in November. When order was restored to the market, South Korea paid the principal and interest to the United States at the agreed exchange rate. That's a traditional currency swap.
This is only partially similar to the current situation in Russia. The fall in the rouble was caused by the outflow of dollars, but unless Beijing were to provide Moscow with dollars, the swap wouldn't give Russia any help in the foreign exchange market. Giving yuan to Russia is as useless as giving anti-diarrheal pills to a man with cold.
Actually, the two countries agreed to swap their currencies in order to promote bilateral trade and investment.
Currently, China is working on the internationalization of yuan, but it still has restrictions on capital accounts. Under these conditions, the swap can give Russian companies a chance to acquire offshore yuan and make settlements and investments in yuan.
When China signed the swap deal with Russia, the People's Bank of China, the country's central bank, issued a statement to explain its goal, saying that the deal will facilitate bilateral trade and direct investment and promote the economic development of both countries.
In terms of direct investment, China's investment in Russia is always greater than the other way round. In 2013, China's direct investment in Russia exceeded US$1 billion, 4,500 times the amount of Russia's investment in China, which totaled only US$22 million. This indicates that Russia has been receiving yuan in the investment field, so it has no need to acquire yuan for such purposes via the swap deal.