The People's Bank of China (PBOC) announced that, approved by the State Council, it recently renewed a bilateral local currency swap agreement with the Central Bank of the Republic of Türkiye. The swap scale is 350 billion yuan/RMB 189 billion Turkish lira, with a three-year term renewable upon mutual consent. Also, both parties signed a cooperation MOU on setting up a yuan/CNY clearing arrangement in Türkiye.

       These arrangements elevate financial cooperation between China and Türkiye. They'll make it easier for enterprises and financial institutions of the two countries to use their local currencies for cross-border settlements, further facilitating bilateral trade and investment.

       After the 2008 global financial crisis, the PBOC started signing bilateral local currency swap agreements with overseas central banks and monetary authorities. For years, these swap arrangements have played an active role in maintaining global financial stability, providing liquidity support, and supporting bilateral trade and investment, among others. According to the Financial Times, after renewing the agreement with the Turkish central bank, the PBOC has signed such agreements with central banks and monetary authorities in 32 countries and regions, with a total swap scale of about RMB 4.5 trillion.

       Industry insiders believe that in recent years, under the China-Turkey bilateral local currency swap agreement, the Turkish central bank's active use of RMB swap funds to support local currency settlement has helped improve the convenience of bilateral trade between China and Türkiye. Meanwhile, the PBOC and the Central Bank of the Republic of Türkiye also signed a cooperation memorandum of understanding (MOU) on establishing a yuan clearing arrangement in Türkiye.    The so-called yuan clearing bank arrangement refers to a mutual trust mechanism established by the PBOC with overseas central banks (monetary authorities) to support the development of local yuan business. It was first initiated in the Hong Kong and Macao regions. In 2003 and 2004, the PBOC authorized Bank of China (Hong Kong) and Bank of China (Macau) to serve as yuan business clearing banks in Hong Kong and Macao respectively, providing clearing arrangements for banks in these regions to handle personal yuan business. In 2009, when the cross-border trade yuan settlement pilot was launched, the business scope of yuan clearing banks in Hong Kong and Macao was expanded accordingly.

       In recent years, to meet market demand and enrich offshore yuan products while offering more convenient yuan clearing services, the PBOC has reached agreements with central banks of multiple countries to set up yuan clearing arrangements. So far, it has authorized 34 yuan clearing banks in 32 countries, covering major global economies.

       What's the role of a yuan clearing bank? Reporters learned that it can provide fund clearing services for overseas financial institutions. Supported by policies like direct participation in mainland foreign exchange, interbank lending, and bond markets, and access to yuan funds from its mainland parent bank, it can offer yuan assets and liquidity. It can also directly serve overseas enterprises and individuals, developing diverse yuan products based on local economic features, trade structures, and customer needs, and providing one-stop yuan financial products and services. After years of development, yuan clearing banks are now widely accepted by central banks and mainstream financial institutions globally. By the end of 2024, over 1,000 overseas financial institutions had opened clearing accounts with yuan clearing banks.

       Yuan clearing banks are also crucial for facilitating bilateral trade and investment. Insiders told reporters that, within the legal and regulatory framework of their locations, they can offer rich yuan options and solutions for China-Turkey economic and trade cooperation. This improves the host country's cross-border yuan service capacity and clearing efficiency, better meeting the local currency settlement needs of enterprises in bilateral trade and investment, and promoting trade and investment facilitation.

       Additionally, yuan clearing banks are key channels for transmitting offshore yuan policies and explaining business rules. They can relay the latest RMB policies and business updates to local enterprises and financial institutions, helping various entities grasp market opportunities and reduce business risks. "Yuan clearing banks are also major offshore RMB market participants. Leveraging RMB liquidity advantages, they actively participate in local foreign exchange and bond market transactions, issue and innovate RMB-denominated financial products, and enliven offshore RMB trading," insiders said.