What Is Currency Swap Agreement Between Countries

The British Petroleum Company issues 5-year bonds worth $100 million, which pay 7.5% interest. It will then donate the $100 million to the swap bank, which it will pass on to the U.S. Piper Company to finance the construction of its British distribution centre. Piper Company will issue 5-year bonds valued at $150 million, which pay 10% interest. Piper Will then pass on the $150 million for the exchange of the bank, which it will pass on to the British Petroleum Company, which will use the funds to finance the construction of its U.S. refinery. The People`s Republic of China has several years of renminbi currency swap agreements with Argentina, Belarus, Brazil, Hong Kong, Iceland, Indonesia, Malaysia, Russia, Singapore, South Korea, the United Kingdom and Uzbekistan, which serve a function similar to that of the Central Bank`s liquidity swaps. [14] [15] [16] [17] [18] [19] As a result of the considerable increase in volumes, the integration and liberalization of international financial markets, and the emergence of new markets and instruments, a trend has developed for central banks to move from direct monetary policy to indirect monetary policy. They tend to rely less on the setting of interest rates on the administrative or exchange controls than on instruments that are in line with market mechanisms, such as open market transactions.B. In the context of these transactions, central banks buy (sell) foreign or domestic securities or are on the condition of resale (purchase) in order to relax (rationalize) the market for bank reserves and thus influence the interest rate. Most money market operations take the form of central bank loans (except in Switzerland), but many other instruments are used for adjustment purposes; including foreign exchange swaps.

Redisk operations have been of limited importance in Malaysia. During the first half of the 1980s, the recycling of public funds and foreign exchange swaps were the main instruments. During the second half of the decade, swaps were increasingly replaced by open market operations and the issuance of central bank certificates.