Working Paper

China's Bilateral Currency Swap Lines

Lin Zhitao, Zhan Wenjie, Yin-Wong Cheung
CESifo, Munich, 2016

CESifo Working Paper No. 5736

We study the determinants of China’s bilateral local currency swap lines that were established since the recent global finance crisis. It is found that economic factors, political considerations, and institutional characteristics including trade intensity, economic size, strategic partnership, free trade agreement, corruption, and stability affect the decision of signing a swap line agreement. Once a swap line agreement decision is made, the size of the swap line is then mainly affected by trade intensity, economic size, and the presence of a free trade agreement. The results are quite robust with respect to the choices of the Heckman two-stage framework or the proportional hazard model. The gravity effect captured by distances between China and its counterparts, if present, is mainly observed during the early part of the sample period under consideration.

CESifo Category
Monetary Policy and International Finance
Empirical and Theoretical Methods
Keywords: RMB swap lines, Heckman two-stage method, proportional hazard model, trade intensity, political factors and institutional characteristics
JEL Classification: F300, F330, F360