Mainland China and Hong Kong today sealed a 200-billion yuan (29 billion US dollars) currency swap agreement which aimed to ease a cash shortage in the island and maintain its status as a regional financial hub.

The three-year currency swap agreement between the People's Bank of China (PBOC) and the Hong Kong Monetary Authority (HKMA) stated that short-term liquidity support would be provided the mainland operations of Hong Kong banks and the Hong Kong operations of mainland banks when need arose.

A statement was issued by the two agencies on their respective websites on Tuesday afternoon.

According to the statement, the arrangement was part of the 14 measures announced in December last year by the Chinese central government to help Hong Kong weather the global financial storm. After nearly one month of deliberations and fine-tuning, the agreement was finally sealed today.

Both sides hoped that the move would bolster confidence in Hong Kong’s financial stability, and to promote the development of renminbi-denominated trade transactions between Hong Kong and the mainland.

The three-year currency swap term could be extended upon agreement by both parties.

In a press release by HKMA, Hong Kong Financial Secretary John C. Tsang was qouted as saying: "The signing of a currency swap agreement by the PBoC and the HKMA is a policy measure of the central government to further support Hong Kong’s economic development, and it will help to maintain Hong Kong’s status as an international financial centre."

HKMA Chief Executive Joseph Yam was also qouted in the press release as saying the agreement would help address contingent needs and maintain financial stability.

"It will also contribute to the development of a mutually assisting, complementary and interactive relationship between the financial systems of the Mainland and Hong Kong," Yam added.