© Reuters / Arnd Wiegmann
The agreement will be signed during the visit of Chinese Prime Minister Li Keqiang to the World Economic Forum in Davos, Xinhua news agency reports.
"A memorandum of understanding will be signed between the central banks of the two countries during Chinese Premier Li Keqiang's visit to Switzerland. It is an important step in the internationalization of the yuan, especially in Europe," said a government official.
According to the agreement, Switzerland will receive a quota of about $8 billion (50 billion Yuan).
This step comes under the framework of the QFII (Qualified Foreign Institutional Investor) program that allows foreign investment in Chinese securities using foreign currencies. Similar centers already exist in Hong Kong and London.
In July 2014, the central banks of China and Switzerland signed an agreement on a $24 billion (150 billion yuan) currency swap to boost bilateral trade and economic relations.
China, the world's second largest economy, has been pushing the yuan as a rival to the dollar in the global financial system since 2010. In November 2014, the Bank of China started to operate European yuan clearing in Frankfurt.
The Chinese yuan is traded directly against the dollar, euro, the Japanese yen and Russian ruble among other currencies. Settlement worldwide in yuan reached $485 billion (3.01 trillion yuan) in 2013 compared to $330 billion (2.06 trillion yuan) in 2012.
Comment: Very significant coming on the heels of Switzerland unpegging itself from the euro. It seems they are concluding it is important to begin linking to the currencies of countries that have viable economies.