China, Egypt sign $2.6 bln currency-swap deal
December 7, 2016, 7:36 am

The Central Bank of Egypt floated the pound currency in October, which led to its devaluation by more than half [Xinhua]

The deal is worth 18 million yuan and will last three years, with a possibility for extension upon agreement of both sides, Egypt’s Central Bank said in a statement.

“The currency swap is a mutually beneficial arrangement between both countries, and mirrored China’s support for the Egyptian economic reform program,” the statement read.

The deal allows the central banks of both countries to exchange payments in one currency for equivalent amounts in the other which will facilitate bilateral trade settlements and provide liquidity support to financial markets.

China has carried out swaps with more than 30 central banks around the world to increase the use of the yuan as a global reserve currency and to stimulate bilateral trade, Reuters reports.

This comes just one month after the Egyptian pound’s value more than halved following a surprise move by Egypt’s central bank to float the currency.

The country has suffered from an acute shortage of foreign reserves following years of economic instability due to political turbulence that started in 2011.

Yuan’s growing influence

In October, the Chinese renminbi (yuan) currency was included in the International Monetary Fund’s (IMF) new Special Drawing Right (SDR) currency basket.

The decision to add the yuan to the IMF’s basket of four reserve currencies, known as Special Drawing Rights, or SDRs, was taken last December.

SDRs are global reserve assets established in 1969 to supplement member countries’ official reserves.

Beginning October 1, “the renminbi will be considered by the international community as a freely usable international currency, and will join the basket of the Special Drawing Right together with the US dollar, the euro, the yen and the British pound,” IMF chief Christine Lagarde announced on Friday.

This is the first time the SDR has been expanded to include an additional currency.

The BRICS Post with inputs from Agencies