The Chinese mainland and Hong Kong signed a three-year currency swap deal worth 200 billion yuan (US$29.29 billion) on Tuesday.

The move, made by the central government, is aimed at helping to stabilize Hong Kong's economy and its currency.

Zhou Xiaochuan, governor of the People's Bank of China (PBOC), and Joseph Yam, Chief Executive of Hong Kong Monetary Authority (HKMA), signed the deal in Beijing on behalf of both sides.

Zhou said it was another area of monetary cooperation between the PBOC and the HKMA in addition to existing collaborative work. With the agreement, short-term liquidity support can be provided to mainland operations of Hong Kong banks and Hong Kong operations of mainland banks in case of need.

This will bolster investor confidence in Hong Kong's financial stability and also help promote the development of yuan-denominated trade transactions between Hong Kong and the mainland, Zhou added.

The term of the swap agreement can be extended upon agreement by both parties. It provides liquidity support of up to 200 billion yuan or HK$227 billion in both directions.

Yam said the establishment of a currency swap arrangement would help to address contingent needs and maintain financial stability in the region.

The deal is one of the 14 support measures Premier Wen Jiabao promised the special administrative region when he met Hong Kong's Chief Executive Donald Tsang in Beijing on December 19, 2008.

Also in December, China and the Republic of Korea reached a three-year deal on currency swap worth 180 billion yuan, which analysts said was another step for the yuan's internationalization.

(China Daily January 21, 2009)