China has signed a series of currency swap agreements since 2008, most recently with New Zealand and Uzbekistan. In an email interview, Daniel McDowell, a doctoral candidate in International Relations at the University of Virginia specializing in International Political Economy, discussed China's currency swap agreements.
WPR: Why is China pursuing currency swap agreements?
Daniel McDowell: There are two reasons for these agreements. First, China is concerned about dependence on the U.S. dollar, which is used to settle about half of the world's international trade transactions. When China accepts payment in dollars, it uses some to buy foreign goods and invests a large portion of the remainder in U.S. government securities. Of course, the value of holding U.S. debt is dependent on the value of the dollar. In light of the U.S. Federal Reserve's continued commitment to low interest rates and its second round of quantitative easing, China is worried about dollar inflation, which would reduce the value of its dollar-denominated assets. So, these currency swaps are one way of reducing Beijing's dependence on buying U.S. debt.