BANK of England Governor Mervyn King and his Chinese counterpart Zhou Xiaochuan have agreed to a three-year currency swap line to promote financial stability and trade between China and Britain.

The maximum value of the arrangement is 200 billion yuan (US$33 billion), according to a statement by the UK central bank. The People's Bank of China put the sterling value at 20 billion pounds (US$31 billion) in a statement posted on its website yesterday.

"The establishment of a sterling-renminbi swap line will support UK domestic financial stability," King said in the news release. "In the unlikely event that a generalized shortage of offshore renminbi liquidity emerges, the bank will have the capability to facilitate renminbi liquidity to eligible institutions in the UK."

The agreement puts the BOE first in a race among European central banks to establish swap facilities with China, allowing London to expand ties with the world's second-biggest economy. London is the hub of the world's US$4-trillion-a-day market for foreign-exchange trading.

China has allowed businesses to settle foreign trade in yuan and signed swap deals to promote the use of the currency in global trade and investment. It has also eased rules for foreign companies to invest in the country using yuan raised offshore, as well as starting direct trading with currencies to boost the yuan as a global currency.

The yuan has risen 1.6 percent this year against the US dollar, making it Asia's best performer among 11 regional currencies tracked by Bloomberg News. The yuan hit a 19-year high of 6.1210 on May 27 and fell 0.1 percent to 6.1342 on Friday, according to China Foreign Exchange Trade System.