The impact of China's currency swap lines on bilateral trade

Abstract

In recent years, China's central bank has actively pursued signing bilateral currency swap agreements with other central banks as part of the authorities' efforts to push for the international use of the Renminbi (RMB). This article empirically evaluates the impact of China's bilateral local currency swap lines on partner countries' bilateral trade with China, given the primary purpose of these swap lines is to aid trade settlement in RMB. We show that signing swap lines with China could boost bilateral trade and increase the Chinese share in aggregate trade. This impact is not evenly distributed across all China's trade partners, our further analysis finds that smaller economies, trade-deficit economies, and economies with less reserves benefited from a larger Chinese share in their exports since signing currency swap agreements with China. More importantly, these swap lines promote the trade volume of partner countries more than that of China, which is reflected in the sense that swap agreements had a larger impact on export than on import for the partner countries, integrating these countries into the global value chains by exporting more to China.