The currency swap agreement between Hungary’s and China’s central banks has been renewed and the total amount has been doubled

Budapest, 10 January 2020 – The People’s Bank of China, the central bank of the People's Republic of China, and the Magyar Nemzeti Bank, the central bank of Hungary have renewed their bilateral currency swap agreement, first concluded in 2013, raising its total amount from CNY 10 billion to CNY 20 billion. Renewing the agreement for three years and raising the total amount contribute to promote strengthening the bilateral economic, financial and trade relations.

The People’s Bank of China and the Magyar Nemzeti Bank (MNB) have renewed their bilateral forint-renminbi currency swap agreement for another three years. The first agreement was signed in 2013 and it was renewed in 2016 for the first time. In line with China’s growing share of world economy and the Chinese renminbi’s increasingly significant role in the international monetary system, the previous total amount of CNY 10 billion has been raised to CNY 20 billion.

According to the agreement, the MNB can purchase Chinese renminbi for forint, up to the amount specified therein. Taking into account the agreement’s bilateral nature, the People’s Bank of China can also swap currencies, i.e. it can also purchase forint for renminbi, if it deems necessary. The term of the agreement is three years, which can be extended again by mutual consent.

The renewal of the agreement and the increase of the total amount promotes the further improvement of the bilateral economic, financial and trade relations and supports the stability of domestic financial markets. Since the renewal of the agreement in 2016, the renminbi was included in the International Monetary Fund’s SDR basket, which strengthened the renminbi’s role as an international reserve currency.

The amount of the MNB’s international reserves is currently more than EUR 28 billion, which significantly exceeds the levels required on the basis of reserve indicators. At prevailing exchange rates, the total amount of the swap agreement represents additional precautionary reserves (buffer) of EUR 2.6 billion in addition to the FX reserves in the MNB’s balance sheet. In case of the potential use of the swap agreement, the renminbi assets will be included in the MNB’s FX reserves. The swap agreement’s function as a safety net becomes more pronounced as a result of the total amount increase. The amount of FX assets which can be used additionally increases, leading to a more subdued external vulnerability of the Hungarian economy.