China and the European Central Bank have signed a currency swap agreement worth 350bn yuan ($57bn; £36bn), state-owned Xinhua news agency has said.
Such agreements mean the central banks can exchange currencies and firms can settle trade in local currencies rather than in US dollars.
The deal is one of the largest for China as it looks to build a more international role for the yuan.
It will last for three years and can be extended if both parties agree.
China’s currency, the yuan, is also referred to as renminbi.
Foreign exchange swaps such as these mean two countries agree to swap, or borrow, each other’s currency at an agreed rate.
In doing so, the parties involved avoid swings in exchange rates. They can also be less reliant on the US dollar for bilateral trade and some business deals.
China’s central bank has now signed currency swap deals amounting to some 2.2 trillion yuan with 22 countries and regions, according to Xinhua.
“The new arrangement will provide more liquidity to the renminbi market in the euro area, promote overseas use of the yuan, and help facilitate trade and investment,” Xinhua reported China’s central bank as saying in a statement.
The European Central Bank said: “The swap arrangement has been established in the context of rapidly growing bilateral trade and investment between the euro area and China, as well as the need to ensure the stability of financial markets.”
Europe’s central bank also said the deal would reassure eurozone banks of the continuous provision of Chinese yuan.