The Monetary Authority of Hong Kong (HKMA) signed a currency-swap agreement with the People's Bank of China Tuesday.

The currency-swap pact was one of the 14 measures in seven areas the Chinese central government announced last month to support Hong Kong's financial stability and economic development.

John Tsang, Financial Secretary of Hong Kong, said the agreement will help maintain the city's status as an international financial center.

Market analysts expected the pact will bolster confidence in the city's financial stability, promote financial stability in the region and help develop yuan-denominated trade transactions between Hong Kong and the Chinese mainland.

Signing the agreement here Tuesday, HKMA Chief Executive Joseph Yam said the pact represents a further strengthening of financial cooperation between the Chinese mainland and Hong Kong.

"The establishment of a currency swap arrangement will help address contingent needs and maintain financial stability," Yam said, adding: "It will also contribute to the development of a mutually assisting, complementary and interactive relationship between the financial systems of the Chinese mainland and Hong Kong."

The agreement has a term of three years, which can be extended upon agreement by the Chinese mainland and Hong Kong. It can provide liquidity support up to 200 billion yuan or 227 billion HK dollars (about 29.3 billion U.S. dollars).

With the arrangement, short-term liquidity support can be provided to Hong Kong banks' operations in the Chinese mainland and Chinese mainland banks' operations in Hong Kong in case of need.

(Xinhua News Agency January 20, 2009)