The Bank of England has revealed it is in talks with the People's Bank of China about agreeing a currency swap deal to help ensure greater financial stability.
Outgoing Bank governor Mervyn King (pictured) met with Governor Zhou Xiaochuan in Beijing to discuss a reciprocal three-year renminbi/sterling currency swap arrangement.
The arrangement - which King said was a milestone between the two countries - would be used to finance trade and direct investment between the two countries and to support domestic financial stability should market conditions warrant.
The UK already has numerous swap deals in place which were utilised during the height of the financial crisis, including with the US and Canada.
Although the deal has not been signed yet, both sides said they would work together to finalise an agreement shortly.
King said: "London is growing rapidly as a centre for RMB business. The establishment of a sterling-renminbi swap line will support UK domestic financial stability.
"In the unlikely event that a generalised shortage of offshore renminbi liquidity emerges, the Bank will have the capability to provide renminbi liquidity to eligible institutions in the UK."
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