China Pursues Currency Swap Deals with Japan and South Korea Amid Trade Tensions

China Engages Japan and South Korea on Currency Swaps

China is reportedly pursuing currency swap agreements with Japan and South Korea, a move aimed at bolstering regional financial stability and deepening economic cooperation. These discussions come amid ongoing global trade tensions and a broader effort by Beijing to promote the international use of its currency, the yuan (renminbi). Reports indicate that the governors of the People's Bank of China (PBOC), the Bank of Korea (BOK), and the Bank of Japan (BOJ) held talks on the sidelines of the recent IMF-World Bank annual meetings in Washington.

Strategic Motivations and Trade Context

The primary motivations behind China's push for these currency swap deals are multifaceted. Firstly, they are seen as a mechanism to strengthen the region's financial safety net and provide liquidity during potential market volatility or debt crises. Secondly, these agreements aim to deepen economic ties between the three East Asian nations, whose combined economic output accounts for a significant portion of the global economy. A key strategic objective for China is also to boost the overseas use of the yuan, thereby challenging the dominance of the U.S. dollar in international transactions. This initiative is particularly relevant given the backdrop of ongoing trade tensions, including the US-China trade war, which has also impacted South Korea and Japan through tariffs.

Existing Agreements and Future Outlook

China already maintains bilateral currency swap agreements with both South Korea and Japan. The five-year currency swap deal between China and South Korea, valued at 400 billion yuan ($56.18 billion), is scheduled to expire in October 2025. This agreement was previously renewed in October 2020. Similarly, China and Japan signed a three-year bilateral swap agreement worth 200 billion yuan in October 2024, extending a previous deal from 2018. While reports suggest discussions for a potential trilateral agreement, some sources indicate that renewed bilateral arrangements might be a more probable outcome. The Bank of Korea has specifically denied engaging in discussions for a *trilateral* currency swap, though negotiations for extending its bilateral agreement with China are reportedly progressing smoothly. It remains uncertain whether any new deal would be integrated into the existing Chiang Mai Initiative, a multilateral currency swap arrangement involving ASEAN+3 countries.

China's Broader Renminbi Internationalization Strategy

These efforts with Japan and South Korea are part of China's larger strategy to internationalize the renminbi. As of the end of September, China has established currency swap agreements with 32 central banks worldwide, totaling approximately 4.5 trillion yuan. This extensive network underscores China's commitment to increasing the global footprint of its currency and fostering a more multipolar international financial system. Further discussions on regional financial cooperation are anticipated to take place during upcoming Association of Southeast Asian Nations (ASEAN) and Asia-Pacific Economic Cooperation (APEC) summits.