The People’s Bank of China and the National Bank of Hungary (MNB) have announced the renewal of their bilateral currency swap agreement, raising its total amount from CNY 10 billion to CNY 20 bln, according to a statement by MNB.
MNB says that the deal contributes to the strengthening of bilateral economic, financial and trade relations between China and Hungary.
The two banks have renewed their bilateral forint-renminbi currency swap agreement for another three years. The first agreement was signed in 2013 and it was renewed in 2016.
MNB argues that the reason behind the increase to CNY 20 bln is Chinaʼs growing role in the world economy and the Chinese renminbiʼs increasing role in the international monetary system.
According to the deal, the MNB can purchase Chinese renminbi for forint, up to the specified amount. The People’s Bank of China can also swap currencies, meaning that it can also purchase forint for renminbi, if it deems necessary. The term of the agreement is three years, which can be extended again by mutual consent.
MNB notes that since the renewal of the agreement in 2016, the renminbi was included in the International Monetary Fund’s SDR basket, strengthening the currency’s role as an international reserve currency.
The amount of the MNB’s international reserves currently stands at more than EUR 28 bln, exceeding levels required on the basis of reserve indicators. At prevailing exchange rates, the total amount of the swap agreement represents additional precautionary reserves of EUR 2.6 bln in addition to the FX reserves in the MNB’s balance sheet.
In case of the potential use of the swap agreement, the renminbi assets will be included in the MNB’s FX reserves.
The bank argues that the swap agreement’s function as a safety net becomes more pronounced as a result of the total amount increase.