(Bloomberg) -- Call it monetary diplomacy.
When China's central bank renewed a $2.2 billion credit facility with Mongolia earlier this year, the deal gave a lifeline to a struggling neighbor heading for an International Monetary Fund bailout.
The arrangement is the latest facility to be agreed by the People's Bank of China among deals with more than 30 countries from Suriname to New Zealand, with a maximum combined value of 3.33 trillion yuan ($490 billion). The credit lines -- a kind of foreign-currency overdraft for central banks -- are intended to spur trade and promote financial stability, according to the PBOC's emailed answers to questions.
In doing so, they also help boost internationalization of the yuan -- and burnish China's emerging status on the global stage.
"It's a prestige thing," said Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government. "They are anxious to be recognized as an economic power."
Problem is, details on the actual usage of the swap lines are scant. That raises questions about their ability to play a central role in helping to internationalize the yuan and underscores the journey China still has to go before it's fully integrated into the global monetary system.
"Most of the swap lines are not actually used," said Benn Steil, director for international economics at the Council on Foreign Relations in New York. The PBOC didn't respond to a question on the exact draw-down of the facilities.
Outside of an immediate crisis, there may be little reason to access cash from the lines. At the same time, the yuan's share of global payments fell to a two-and-a half year low in April amid tighter capital controls.
Central banks in Pakistan and South Korea are among those to have used the facilities in the past.
The maximum amount available under swap lines has leveled off as the flow of new arrangements has slowed. That could be linked to the decline in China's foreign exchange reserves, which have fallen to about $3 trillion from a peak of $4 trillion in 2014, as authorities intervened to support the yuan.
In some ways, the swaps may undercut the PBOC's role in promoting China's own currency by allowing counterparties to buy dollars or euros. "Ultimately, the purpose for seeking out an renminbi swap line is, paradoxically, to secure access to dollar liquidity," Steil said.
The central bank swap lines function somewhat like a consumer overdraft. The PBOC will wire renminbi requested by other countries, who will use the funding either to pay for goods imported from China or -- especially so in the case of a government experiencing a funding crisis -- swap it into another currency. The money would then be repaid with interest on an agreed date.
“The PBOC has never intentionally targeted any quantity or size of currency swaps, and will continue to make progress on related work based on criteria of equality, voluntariness and mutual benefit,” the PBOC said.
Even so, promoting the yuan around the world is an explicit priority for President Xi Jinping, who wants to see it used in everything from the central bank's foreign reserves and settling trade, to financing Belt and Road Initiative plans to build infrastructure from Asia to Europe and Africa.
Currency swaps weren't invented in China. The U.S. Federal Reserve began foreign-exchange swap lines with allies including West Germany at the peak of the Cold War in 1962 to defend against losses from gold reserves, and in 2007 revived the program to help fight the financial crisis.
The European Central Bank, the Swiss National Bank and the Bank of Japan all cooperated on swap facilities during the crisis, and continue to reinforce their presence, for instance in the period immediately after the U.K.'s vote to leave the European Union.
Meanwhile the IMF is debating a redesign of global financial safety net facilities such as the Chiang Mai Initiative, created after the Asian financial crisis.
Still, the growth of the PBOC's swap facility underscores the willingness of trading partners to embrace China's growing economic clout.
Egypt and China signed a currency-swap deal in December for about $2.6 billion, allowing the North African nation to shore up foreign reserves after floating its currency. The agreement would help "unleash the vast potential of the Egyptian economy and instill confidence by bolstering economic activity,” Egypt's central bank said at the time.
Mongolia's renewed agreement came just months after China postponed bilateral meetings after the country allowed a four-day visit by Tibet's spiritual leader, the Dalai Lama.
"Given that the PBOC is very much state-controlled, one can view this as part of a ‘monetary diplomacy' aimed at raising the profile of not just the yuan but China itself," said Michael Shaoul, chief executive officer at Marketfield Asset Management in New York.
Read More: Global Yuan Use Lost Momentum Amid Capital Controls, Fitch Says
Swap lines will also likely play some role in bolstering the yuan's use in global central bank reserves given the currency's inclusion in the IMF's special drawing rights basket, according to David Buckle, London-based head of investment solutions design at Fidelity International.
"With the Chinese currency entering the SDR, it's likely that the yuan has an increased role in non-Chinese central bank foreign reserve management and thus would potentially require increased swap lines,” he said.
Yet the PBOC probably has a way to go before it's considered a creditor the way the IMF, World Bank or even the Fed is.
"It still seems a long time away that the PBOC can be considered to be the world's lender of last resort," Shaoul said. "But if you wait long enough anything is possible, particularly in the Asian region."
--With assistance from Scott Lanman Nasreen Seria Heng Xie and Xiaoqing Pi
To contact Bloomberg News staff for this story: Enda Curran in Hong Kong at ecurran8@bloomberg.net, Yinan Zhao in Beijing at yzhao300@bloomberg.net.
To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Jeff Kearns
With assistance from Enda Curran, Yinan Zhao
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