CBVS makes RMB 50 million drawdown under currency swap agreement with PBOC in 2015/2016

On March 18, 2015, the Central Bank of Suriname (CBVS) and the People’s Bank of China (PBOC) signed an RMB 1 billion (SRG 520 million) bilateral currency swap agreement to facilitate trade and improve foreign currency liquidity in Suriname. CBVS made three (gross) drawdowns under this currency swap agreement in 2015 and 2016: an RMB 800,000,000 drawdown (tranche 1) between April 30, 2015 and May 2, 2016, an RMB 150,000,000 drawdown (tranche 2) between June 30, 2015 and June 30, 2016, and an RMB 50,000,000 drawdown (tranche 3) between October 23, 2015 and October 24, 2016. The interest rate that applied to these borrowings is unknown. However, it is known that the maturity of each borrowing was approximately 1 year (12 months). Tranche 1 is captured via Project ID#89431. Tranche 2 is captured via Project ID#89432. Tranche 3 is captured via Project ID#89433. CBVS made at least one additional (gross) drawdown worth RMB 1 billion in 2016 (captured via Project ID#96416). The interest rate that applied to this borrowing is unknown. However, it is known that the maturity of the borrowing was approximately 1 year (12 months). Then, the RMB 1 billion swap agreement between CBVS and the PBOC was ‘extended’ in 2017 and CBVS made three additional (gross) drawdowns under the extended agreement: an RMB 800,000,000 drawdown (tranche 1) between May 11, 2017 to May 11, 2018, an RMB 150,000,000 drawdown (tranche 2) between July 11, 2017 to July 11, 2018, and an RMB 50,000,000 drawdown (tranche 3) between November 6, 2017 to February 6, 2018. The interest rate that applied to these borrowings is unknown. However, it is known that the maturity of each borrowing was approximately 1 year (12 months). Tranche 1 is captured via Project ID#89434. Tranche 2 is captured via Project ID#89435. Tranche 3 is captured via Project ID#89436. CBVS made at least one additional (gross) drawdown worth RMB 952,718,000 in 2018 (captured via Project ID#96437). The interest rate that applied to this borrowing is unknown. However, it is known that the maturity of the borrowing was approximately 1 year (12 months). Then, on February 11, 2019, the CBVS and the PBOC renewed their RMB 1 billion (SRG 520 million) bilateral currency swap for another three years. CBVS made at least one additional (gross) drawdown worth RMB 983,449,719 million in 2019. The interest rate that applied to this borrowing is unknown. However, it is known that the maturity of the borrowing was approximately 1 year (12 months). The 2019 drawdown is captured via Project ID#92482. CBVS made one or more drawdowns worth RMB 1 billion in 2020 and worth RMB 1 billion in 2021. The interest rate that applied to these borrowings is unknown. However, it is known that the maturity of each borrowing was approximately 1 year (12 months). The 2020 drawdown is captured via Project ID#96434 and the 2021 drawdown is captured via Project ID#96435. The currency swap facility’s outstanding balance was RMB 1 billion as of December 21, 2015, RMB 1 billion as of December 21, 2016, RMB 1 billion as of December 21, 2017, RMB 952,718,000 as of December 31, 2018, RMB 983,449,719 as of December 31, 2019, RMB 1 billion as of December 31, 2020, RMB 1 billion as of December 31, 2021, and RMB 0 as of December 31, 2022

Additional details

1. A bilateral currency swap (BCS) agreement — also known as a central bank liquidity swap agreement — is an agreement between the central banks of two countries to exchange cash flows in different currencies at predetermined rates over a specified period of time. Central banks participate in these agreements to facilitate bilateral trade settlements using their national currencies (rather than relying upon on a third-party currency such as the U.S. dollar), manage demands from their local banks, and provide liquidity support to financial markets. The party that draws down on the swap line becomes the borrower and the other party becomes lender. During the term of the swap, the party that draws down on the swap line makes either fixed or floating interest payments on the principal amount. If both parties draw down on the swap line, then both parties exchange fixed or floating interest payments on the principal amounts. The 5-step process of drawing upon a currency swap line with the People’s Bank of China (PBOC) can described from the perspective of an importer in a given country (‘Country X’) seeking to settle trade with a Chinese firm in RMB. Step 1: The central bank of Country X and the PBOC activate their currency swap in advance, at which point each party deposits a specific amount of its currency in an account controlled by the other party (i.e. the central bank of Country X deposits local currency in an account controlled by the PBOC, and the PBOC deposits an equivalent amount in RMB in an account controlled by the central bank of Country X). Step 2: A firm in Country X that imports goods from China applies for an RMB-denominated loan from a domestic bank. Step 3: The domestic bank in Country X that receives the loan application then applies to its central bank for an RMB-denominated loan. After a review process, the central bank of Country X notifies the domestic bank applicant that its loan application was approved. The central bank of Country X subsequently requests that the PBOC transfer RMB funds from the central bank of Country X’s swap account within the PBOC to the loan applicant’s account with a corresponding bank in China. Step 4: The domestic bank in Country X directs the corresponding bank in China to transfer RMB funds into a Chinese exporter’s account, and the corresponding bank in China provides RMB funds to the Chinese exporter. Step 5: The importer in Country X repays the RMB-denominated loan at its maturity date. The domestic bank notifies the central bank of Country X of the repayment, and transfers RMB into the central bank’s account within the PBOC through the corresponding bank in China. For the central bank of Country X, the RMB deposit is an asset that should be recorded on its balance sheet as an official reserve asset denominated in RMB. The contra entry of this asset is the liability in the local currency of Country X that represents China’s claims in the central bank of Country X. This should be also recorded on the balance sheet of the central bank of Country X. At the time of the exchange of currencies, it should be recorded as an increase in assets and an increase in liabilities of the monetary authorities in the balance of payments. The reason why the PBOC uses this mechanism to provide renminbi liquidity to other central bank is to increase the speed, convenience, and volume of transactions between the two countries. More detailed information about currency swaps with the PBOC can be found at https://www.imf.org/-/media/Files/Publications/WP/2021/English/wpiea2021210-print-pdf.ashx and https://thechinaguys.com/the-rise-of-the-renminbi-the-reality-of-bilateral-swap-agreements/ and https://www.imf.org/external/pubs/ft/bop/2017/pdf/17-25a.pdf. 2. AidData treats drawdowns under BCS agreements with the PBOC as collateralized loans because, in a BCS arrangement, the currency of the borrower is held as collateral while the lender receives interest on the amount drawn down by the borrower until repayment is made. 3. A 2017 Financial Note published by Suriname’s Ministry of Finance indicates that CBVS’s foreign liabilities increased by $155 million due to one or more drawdowns on its currency swap with the PBC between April 2015 and June 2015. 4. Most central banks publish their end-of-year outstanding PBOC swap debt, but only a few report detailed transaction-level data on drawdowns during the year. Therefore, if no information on drawings is available, AidData assumes that total drawdowns during the reporting period equal the amount outstanding at the end of the reporting period (and vice versa). Since the (de jure) maturities of PBOC swap drawings are 12 months or less, this creates a lower bound estimate for actual drawdowns under the PBOC swap line. 5. PBOC swap debt is frequently rolled over. In central bank reports where one can only observe the year-end outstanding amount, no distinction between rollovers and drawdowns is possible. In these cases, one can derive (new) drawdowns as the difference between the current and last year’s outstanding swap debt stock. This measure essentially captures net lending through the PBOC swap line. 6. As of January 2023, the CBVS had not published annual reports for years 2020 and 2021 on its website. AidData treats RMB 1 billion as the gross drawdown value and amount outstanding in 2020 and 2021 given reporting of outstanding PBOC swap debt in IMF country reports and BOP statistics. A 2022 report by CBVS confirms that approximately $155 million in swap drawings were repaid in February 2022 (https://web.archive.org/web/20221004005835/https://sdmo.org/images/verslagen/Macro/Macrodata%202022-ENG.pdf).

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