BEIJING — The People’s Bank of China (PBOC) has decided to launch Central Bank Bills Swap (CBS), a tool allowing primary dealers engaged in an open-market operation to swap the perpetual bonds they hold for the central bank bills.

The move can increase the liquidity of perpetual bonds, enhance market enthusiasm to subscribe the bonds and therefore support banks to replenish their capital through perpetual bond issuance and create favorable conditions for the financial institutions to boost the real economy, said a statement of the PBOC issued on Jan 24.

The central bank also announced that perpetual bonds issued by banks with a rating of no less than AA can be taken as eligible collateral for a medium-term lending facility, targeted medium-term lending facility, standing lending facility and re-lending.

In mid-January, China Banking and Insurance Regulatory Commission gave the first approval of issuing perpetual bonds by commercial banks to the Bank of China, which will be allowed to issue bonds worth up to 40 billion yuan (about $5.9 billion).

A perpetual bond is fixed income security with no maturity date that is not redeemable but pays a steady stream of interest.

The instrument was expected to help banks improve capital structure, expand lending and boost risk resilience and enrich investment products in the bond market and meet the demand of investors, according to the commission.