File photo shows an exterior view of the People's Bank of China in Beijing, capital of China. (Photo: Xinhua)

The People's Bank of China (PBC), the central bank, announced on Thursday the launch of a 500 billion yuan ($70.61 billion)  swap facility that allows eligible financial institutions to use assets as collateral to secure liquidity, as the central bank innovates a new structural monetary policy tool to shore up the country's capital market.

In order to boost the healthy and stable development of the capital market, the PBC has decided to establish a Securities, Funds, and Insurance Companies Swap Facility (SFISF), according to a statement seen on the PBC's website.

This facility allows eligible securities, fund and insurance companies in swapping their holdings of bonds, stock exchange-traded funds (ETFs), and constituent stocks of the CSI 300 Index to use as collateral for high-liquidity assets like government bonds and central bank bills with the PBC, the statement reads.

The initial scale of the swap facility is set at 500 billion yuan, which may be expanded in the future based on market developments, according to the statement.

Starting from Thursday, eligible financial institutions can file applications.

PBC Governor Pan Gongsheng revealed the new policy tool during a September 24 press conference in Beijing on September 24. 

"If the initial 500 billion yuan is successful a second 500 billion yuan could follow, and potentially even a third 500 billion yuan. I believe this is possible, we remain open to the possibility. The funds obtained under this facility can only be used for investing in the stock market," Pan said.

The market sentiment has improved significantly on the Chinese government's announcement of taking various policy measures including monetary stimulus and property market support to galvanize the economy's rebound.

The combined turnover of China's Shanghai and Shenzhen bourses reached 3.45 trillion yuan on Tuesday, surpassing the 2.59 trillion-yuan turnover recorded on September 30 and hitting a new high.

"We have full confidence in achieving the annual goals and tasks set for economic and social development as well as attaining sustained, healthy economic and social development," Zheng Shanjie, head of the National Development and Reform Commission, said on Tuesday.