China and the UAE on Tuesday signed a currency swap agreement worth 35 billion yuan ($5.54 billion), the People's Bank of China said, adding that the deal was effective for three years and would boost two-way trade and investment.
The agreement signed in Dubai was announced while Chinese Premier Wen Jiabao tours the Middle East, including the Emirates, and is the latest in a string of arrangements to facilitate greater use of China's yuan in international trade.
The PBOC announced the deal on its website (www.pbc.gov.cn) and said it was worth Dh20 billion, the UAE's currency.
In the first 11 months of 2011, trade between China and the UAE grew to $32 billion in value, a rise of 38.2 per cent on the same period in 2010, according to Chinese customs data. Chinese exports to the UAE, worth $24.3 billion, dominated that trade.
The UAE is a relatively modest exporter of crude to China. In the first 11 months of 2011, it shipped 6.4 million tonnes of crude to China, a rise of 26 per cent on the same period in 2010.
China has signed a series of currency swap agreements in recent years with key trading partners in a bid to boost the use of the yuan for the direct settlement of international trade. Other countries that have signed such deals recently include Thailand and South Korea.
Beijing's long-term ambition is to unseat the dollar as the dominant unit of international settlement for cross-border trade in goods and services, especially now that China is the world's single largest exporting nation and the second largest importer.
Internationalising the use of the yuan in trade would also strengthen the case for the Chinese currency to be included in the basket of key settlement currencies that the International Monetary Fund uses in its Special Drawing Right unit of account.
Besides the currency swaps, central banks from Japan to Nigeria have either discussed or agreed with China to hold yuan assets as part of their official foreign exchange reserves.