Article

Swap Worthy? The Geopolitical Determinants of Chinese Currency Swaps

Sachintha Pilapitiya¹^,*

¹Tsinghua University, Beijing, China

^*Correspondence: Sachintha Pilapitiya, E-mail: sachipila@gmail.com

Received: 2025-04-29Revised: 2025-05-08Accepted: 2025-05-08Published: 2025-06-25

J. Int. Eco. Glo. Gov., 2025, 2(4), 23-48; https://doi.org/10.12414/jiegg.250608

Abstract:

Abstract: This study investigates the geopolitical determinants of Chinese bilateral currency swap agreements (BSAs), focusing not only on why some swaps are signed, but also on why others are expanded or terminated over time. Unlike prior research that centers on swap initiation, this paper provides a comprehensive lifecycle analysis of BSAs—covering their initiation [...] Read More.

Keywords: China, Currency Swaps, Financial Statecraft, Financial Cooperation

Keywords: China, Currency Swaps, Financial Statecraft, Financial Cooperation

Abstract

Abstract

This study investigates the geopolitical determinants of Chinese bilateral currency swap agreements (BSAs), focusing not only on why some swaps are signed, but also on why others are expanded or terminated over time. Unlike prior research that centers on swap initiation, this paper provides a comprehensive lifecycle analysis of BSAs—covering their initiation, evolution, and discontinuation—through a novel integration of geopolitical alignment indicators (e.g., UN voting, BRI participation) and economic fundamentals (e.g., GDP size, reserves). Employing a mixed-methods design combining logistic regressions, Prais–Winsten models, and survival analysis, the study uncovers a dual logic behind China’s swap diplomacy: closer geopolitical alignment increases the probability of swap access and durability, while economic strength amplifies the benefits of alignment and cushions the risks of weaker ties. This interactive framework contributes theoretically to the literature on financial statecraft by demonstrating how China fuses diplomatic incentives with liquidity tools. Practically, the findings highlight that for smaller economies, Chinese BSAs offer both financial benefits and potential political dependencies—raising critical questions about autonomy, conditionality, and strategic alignment in a fragmented global monetary system.

Keywords: China, Currency Swaps, Financial Statecraft, Financial Cooperation

Download the full text PDF for viewing and using it according to the license of this paper.

Funding

Funding

None.

Conflicts of Interest

Conflicts of Interest:

The authors declare that they have no conflicts of interest to report regarding the present study.

References

References

Armijo, L. E., & Katada, S. N. (2015, January). Theorizing the Financial Statecraft of Emerging Powers. New Political Economy, 20(1), 42–62. Retrieved 2023-11-29, from https://doi.org/10.1080/13563467.2013.866082
Bailey, M. A., Strezhnev, A., & Voeten, E. (2017). Estimating Dynamic State Preferences from United Nations Voting Data. The Journal of Conflict Resolution, 61(2), 430–456. Retrieved 2023-11-05, from https://www.jstor.org/stable/26363889
Bellemare, M. F., Masaki, T., & Pepinsky, T. B. (2017, July). Lagged Explanatory Variables and the Estimation of Causal Effect. The Journal of Politics, 79(3), 949–963. Retrieved 2024-04-26, from https://www.journals.uchicago.edu/doi/full/10.1086/690946
Bernanke, B. S. (2016, January). The dollar’s international role: An “exorbitant privilege”? Retrieved 2023-11-30, from https://www.brookings.edu/articles/the-dollars-international-role-an-exorbitant-privilege-2/
Broich, T. (2017, December). Do authoritarian regimes receive more Chinese development finance than democratic ones? Empirical evidence for Africa. China Economic Review, 46, 180–207. Retrieved 2024-04-25, from https://www.sciencedirect.com/science/article/pii/S1043951X17301402
Broz, J. L., Zhang, Z., & Wang, G. (2020, July). Explaining Foreign Support for China’s Global Economic Leadership. International Organization, 74(3), 417–452. Retrieved 2023-09-28, from https://www.cambridge.org/core/journals/international-organization/article/explaining-foreign-support-for-chinas-global-economic leadership/C115F7DE2C9528DF9E0342F5FC352E5E
CBA, P. A. (2018). Supplementary Agreement.
Chen, F. (2024, February). China’s yuan replaces US dollar, euro as Russia’s ‘primary’ foreign currency for overseas economic activity. South China Morning Post. Retrieved 2024-04-19, from https://www.scmp.com/economy/global-economy/article/3250599/chinas-yuan-replaces-us-dollar-euro-russias-primary-foreign-currency-overseas-economic-activity
Chey, H.-K. (2015). Renminbi in Ordinary Economies: A Demand-side Study of Currency Globalization. China & World Economy, 23(3), 1–21. Retrieved 2023-09-21, from https://onlinelibrary.wiley.com/doi/abs/10.1111/cwe.12111
Cochrane, D., & Orcutt, G. H. (1949, March). Application of Least Squares Regression to Relationships Containing Auto-Correlated Error Terms. Journal of the American Statistical Association, 44(245), 32–61. Retrieved 2024-04-19, from https://doi.org/10.1080/01621459.1949.10483920
Cowhig, . (2021, February). China’s Diplomacy: How Many Kinds of Major and Minor Partner "Relations" Does China Have? Retrieved 2024-01-31, from https://goodaeriewordpress.com/2021/02/04/chinas-diplomacy-how-many-kinds-of-major-and-minor-partner-relations/
Dreher, A., Fuchs, A., Parks, B., Strange, A. M., & Tierney, M. J. (2018, March). Apples and Dragon Fruits: The Determinants of Aid and Other Forms of State Financing from China to Africa. International Studies Quarterly, 62(1), 182–194. Retrieved 2024-04-25, from https://doi.org/10.1093/isq/sqx052
Essers, D. (2017, September). The global financial safety net: In need of repair?
Gallagher, K. P., Gao, H., Kring, W. N., & Ocampo, J. A. (2020, April). The Global Financial Safety Net Tracker. Pardee School of Global Studies, Boston University.
Garcia-Herrero, A., & Xia, L. (2015, October). RMB Bilateral Swap Agreements: How China chooses its partners? Asia-Pacific Journal of Accounting & Economics, 22(4), 368–383. Retrieved 2023-09-25, from https://doi.org/10.1080/16081625.2014.960059
Goh, E. (2016). Rising China's Influence in Developing Asia. Oxford University Press.
Grudgings, S. (2010, October). Brazil seen electing Rousseff to extend Lula legacy. Reuters. Retrieved 2024-03-01, from https://www.reuters.com/article/brazil-election/brazil-seen-electing-rousseff-to-extend-lula-legacy-idUKN3027853520101031/
Hao, K., Han, L., & Li, T. W. (2022, September). The impact of China’s currency swap lines on bilateral trade. International Review of Economics & Finance, 81, 173–183. Retrieved 2023-09-26, from https://www.sciencedirect.com/science/article/pii/S1059056022001356
He, A. (2015, May). Domestic Sources and RMB Internationalization: A Unique Journey to a Major Global Currency. Retrieved from https://www.cigionline.org/publications/domestic-sources-and-rmb-internationalization-unique-journey-major-global-currency/
Ideas, L. (2023, April). How Are We to Understand China’s International Partnerships? Retrieved 2024-03-05, from https://chinaglobalsouth.com/analysis/how-are-we-to-understand-chinas-international-partnerships/
Li, S., Sahasrabuddhe, A., & Wingo, S. (2023, October). The Limits of Economic Statecraft: China’s Bilateral Swap Agreements and the External Security Environment.
Liao, S., & McDowell, D. (2015). Redback Rising: China’s Bilateral Swap Agreements and Renminbi Internationalization. International Studies Quarterly, 59(3), 411–422. Retrieved 2023-09-21, from https://www.jstor.org/stable/43868283
Lin, Z., Zhan, W., & Cheung, Y.-W. (2016). China’s Bilateral Currency Swap Lines. China & World Economy, 24(6), 19–42.
Lockett, H., & Leahy, J. (2023, April). Brazil’s Lula calls for end to dollar trade dominance. Retrieved 2024-02-27, from https://www.ft.com/content/669260a5-82a5-4e7a-9bbf-4f41c54a6143
Mahbi, M. (2021, May). Barriers for SHANGHAI COOPERATION ORGANIZATION (SCO) to Pave Road to Supranationalism. Journal of International Studies. Retrieved 2024-04-25, from https://doi.org/10.24198/intermestic.v5n2.4
McDowell, D. (2019a, June). Emergent international liquidity agreements: central bank cooperation after the global financial crisis. Journal of International Relations and Development, 22(2), 441–467. Retrieved 2023-09-27, from https://doi.org/10.1057/s41268-017-0106-0
McDowell, D. (2019b). The (Ineffective) Financial Statecraft of China’s Bilateral Swap Agreements. Development and Change, 50(1), 122–143. Retrieved 2023-09-25, from https://doi.org/10.1111/dech.12474
People’s Bank of China (PBoC). (2009, May). China Monetary Policy Report Quarter One, 2009.
People’s Bank of China (PBoC). (2018, December). Speech by the Governor of the People's Bank of China.
Olayiwola, A. (2023, July). Falana writes CBN, seeks information on Nigeria-China currency swap agreement. Retrieved 2024-02-28, from https://punchng.com/falana-writes-cbn-seeks-information-on-nigeria-china-currency-swap-agreement/
Oluwafemi, A. (2023, August). CBN replies Falana, says Nigeria’s currency swap deal with China still valid. TheCable. Retrieved 2023-11-27, from https://www.thecable.ng/cbn-replies-falana-says-nigerias-currency-swap-deal-with-china-still-valid
Ranasinghe, I. (2022, May). Chinese swap unusable even for Chinese imports. The Morning. Retrieved 2023-11-30, from https://themorning.lk/articles/202787
Song, K., & Xia, L. (2020, July). Bilateral swap agreement and renminbi settlement in cross-border trade. Economic and Political Studies, 8(3), 355–373. Retrieved 2023-09-26, from https://doi.org/10.1080/20954816.2020.1780818
Subacchi, P. (2010, October). One Currency, Two Systems: China’s Renminbi Strategy. Chatham House Publications.
Wooldridge, J. (2019). Introductory Econometrics: A Modern Approach, 7th Edition. Retrieved 2024-04-25, from https://www.cengage.uk/c/introductory-econometrics-a-modern-approach-7e-wooldridge/
Xue, Y., & Makengo, B. M. (2021, September). Twenty Years of the Shanghai Cooperation Organization: Achievements, Challenges and Prospects. Open Journal of Social Sciences, 9(10), 184–200. Retrieved 2024-02-25, from https://www.scirp.org/journal/paperinformation.aspx?paperid=112637
Zhang, F., Yu, M., Yu, J., & Jin, Y. (2017, December). The Effect of RMB Internationalization on Belt and Road Initiative: Evidence from Bilateral Swap Agreements. Emerging Markets Finance and Trade, 53(12), 2845–2857. Retrieved 2023-09-22, from https://doi.org/10.1080/1540496X.2017.1382346