The swap line will have a maximum value of $32.6 million, the People's Bank of China said.
The agreement means the Bank of England could draw on the line if there is a shortage of yuan funds in Britain, The Wall Street Journal reported. The currency lines could boost foreign investors' confidence in trading of the yuan, which is also known as the renminbi.
"The bilateral swaps are a backstop of sorts but are still needed to help facilitate the growth of renminbi in foreign markets, especially if challenging liquidity conditions were to emerge," said Paul Mackel, head of Asian currency research at HSBC Holdings PLC in Hong Kong. The deal "is not just a symbolic move because it will help support the overall depth and liquidity of renminbi" in the British market.
China has signed similar currency swap agreements with more than 20 other countries, Chinese news agency Xinhua reported Sunday.
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