My comment: This mechanism helps to develop trade with countries in
the South. The most strategic area because three reasons. One, because
it is the area with bigger potential for growth (Malaysia, Vietnam,
Laos, Indonesia, etc.) and also to be partner of the India, Bangla
Desh and Pakistan (three of the future bigger economies) with the
ASEAN. Two, because it helps to develop poor areas in the Sounth, in
particular Yunnan and also Giangxi and Sichuan, where because poverty
in Guanxi or earthquake in Sichuan, more development is needed.

But also it helps to stabilise China´s currency. Despite what some
Western financial economists that looks at financial data and not at
economic data think and what Western governments tell the real factor
that helps foreign trade is not the price of the currency (either high
or low is always subjective) but its stability. One day, those
economists will learn that bigger exporter areas in Europe (such as
Germany and Scandinavian countries) has had high valued currencies
since decades ago and how an strong currency such the Euro has
sustained foreign account surplus in those countries that moved to it.
US economy enjoyed foreign surplus when US dollar was high after WW2
and suffers deficit nowadays when US dollar is weaker.

What really helps corporations, and small and medium business, is to
know that a changes on currency exchange rates (something that they
cannot control) will not ruin their investments to enter into foreign
markets. Without such confidence, any rule that any government puts in
place is useless. And lower currencies will help exports but will make
imports more expensive, as history has proven that does not turn the
sign of foreign trade.

Peace and best wishes.

Xi

http://news.xinhuanet.com/english/2009-02/16/content_10825947.htm

BEIJING, Feb. 16 (Xinhua) -- More countries and regions, especially
China's trading partners in the Association of Southeast Asian Nations
(ASEAN), will step up to sign currency swap agreements with China amid
the global economic downturn, economic experts said.

    The People's Bank of China (PBOC), China's central bank, had
signed bilateral currency swap agreements with Malaysia, South Korea
and China's Hong Kong Special Administrative Region in the past two
months, totaling 460 billion yuan (67.3 billion U.S. dollars).

    The move aimed to promote trade and investment to boost economic
development, said the central bank.

    ASEAN countries which "suffered from the 1997-98 Asian financial
crisis" are more likely to be the next ones to establish a currency
swap with China, said Zhao Xijun, professor of finance at the Renmin
University of China.

    Chai Yu, director of Institute of Asia-Pacific Studies at the
Chinese Academy of Social Sciences, pointed out that a number of
countries are willing to sign currency swap agreements with China,"
especially the eight neighboring countries that had signed currency
settlement agreements with China", including Russia and Vietnam.

    WHY CURRENCY SWAPS?

    Many Asian countries and regions had started to focus on regional
cooperation to avoid a repeat of the financial crisis that rocked the
region in 1997, especially in times of global financial downturn.

    In 2000, ASEAN members, together with China, Japan and South
Korea, launched the Chiang Mai Initiative, a network of bilateral
currency swap agreements to enhance monetary cooperation.

    "Bilateral currency swap agreements help to keep a stable
financial and monetary system and avoid exchange rate risk," said Zhao
Xijun.

    The two sides could provide financial aid to each other when
facing "short-term liquidity needs", said an unidentified sources with
the PBOC.

    The agreements would also enhance bilateral trade by increasing
import demand of commodities from the opposite side and saving the
exchange cost for the exporters from both sides, said sources.

    Conducting currency swap with other countries shows China's
fulfillment of its responsibility amid the global crisis and its
contribution to a stable regional currency system, said Zhang
Yansheng, head of the International Economic Research Institute under
the National Development and Reform Commission.

    WHY CHOOSE CHINA?

    "China's trading partners have been confident about the stability
of both the yuan and China's economy," said Zhang, noting that China's
economy is basically sound with adequate foreign exchange reserves and
a stable currency.

    China has been the world's top foreign exchange owner as its
foreign exchange reserves climbed 27.3 percent in 2008 to 1.9 trillion
U.S. dollars, according to PBOC figures.

    China has also maintained its status as the fastest growing
economy despite the fact that its economic growth slowed to nine
percent last year, and economists believe that China will be the first
to revive from the global crisis.

    "Currency swaps have promoted the use of the yuan in international
finance and trade through the recent agreements," Zhao said.

    However, experts also point out that the yuan still has a long way
to go to become a new world currency.

    China would consider the current situation of bilateral trade,
investment and economic cooperation, as well as the stability of the
financial system when picking its next partner, said Chai Yu.

    The three currency swap contracts have an effective period of
three years, and both the scale and the length of agreements could be
extended upon agreement by both parties, said Chai.


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