China & World Economy / 19–42, Vol. 24, No. 6, 2016

China’s Bilateral Currency Swap Lines

Zhitao Lin, Wenjie Zhan, Yin-Wong Cheung*

Abstract

We study the determinants of China’s bilateral local currency swap lines that were established following the recent global finance crisis. It is found that economic factors, political considerations and institutional characteristics, including trade intensity, economic size, strategic partnership, free trade agreements, corruption and stability, affect the decision to sign a swap line agreement. Once a swap line agreement decision is made, the size of the swap line is then mainly affected by trade intensity, economic size and the presence of a free trade agreement. The results are quite robust with respect to the choices of the Heckman two-stage framework or the proportional hazard model. The gravity effect captured by distances between China and its counterparts, if present, is mainly observed during the early part of the sample period under consideration.

Key words: Heckman two-stage method, political factors and institutional characteristics, proportional hazard model, RMB swap lines, trade intensity
JEL codes: F30, F33, F36