Wednesday, January 3rd., 2018
Pakistan's State Bank Green Lights Yuan-Based Trade
With China
With China
©
Sputnik/ Alexandr Demyanchuk
The
State Bank of Pakistan (SBP) has announced that all arrangements for
using the Chinese currency for trade and investment are already in
place.
The
central bank of Pakistan has given permission for the Chinese yuan
to be used for investment and bilateral trade deals, which will
eventually replace the dollar in Pakistan-China trade.
The increase in trade and investment with China under the China-Pakistan Economic Corridor (CPEC) makes it easier for Pakistan to see that CNY-denominated trade with China will increase significantly and will provide with long term benefits for both the countries.
Pakistan
will be able to pay for imports from China in yuan rather than in
dollars, and Chinese companies investing in CPEC projects will bring
in yuan-denominated funds to Pakistan and remit back their profits and
dividends also in yuan instead of dollars or other foreign currencies.
"The SBP, in the capacity of the policy maker of financial and
currency markets, has taken comprehensive policy related measures
to ensure that imports, exports and financing transactions can be
denominated in yuan," Dawn news reported quoting the bank's statement.
Furthermore, even non-Chinese companies participating in the CPEC will be able to do bilateral trade via their Chinese principal companies, according to the publication.
The increase in trade and investment with China under the China-Pakistan Economic Corridor (CPEC) makes it easier for Pakistan to see that CNY-denominated trade with China will increase significantly and will provide with long term benefits for both the countries.
"SBP has already put in place the required
regulatory framework which facilitates use of CNY in trade and
investment transactions," the press release of the central bank stated.
In
late December Pakistan’s Minister for Planning and Development Ahsan
Iqbal said that the government was considering a Chinese proposal to use
the renminbi or yuan instead of the US dollar for payments in all
bilateral trade.
The minister further said that China had not stopped CPEC-related investments in Pakistan
and all projects had been identified and committed to by both sides.
The areas of cooperation include connectivity, energy, trade and
industrial parks, agricultural development and poverty alleviation,
tourism, people’s livelihood and exchange programs and financial
cooperation, Dawn news reported.
Pakistan
and China have also agreed to establish and improve cross-border credit
systems and financial services. In the near future plans strengthening
currency swap arrangements and the establishment of a bilateral payment
and settlement system will also take place.
Hence with the central bank’s approval this cooperation will take
on another dimension as it means that Pakistani and Chinese banks will,
in the course of time, be able to open import letters of credit
in rupees and yuan.
©
REUTERS/ Edgar Su
Furthermore, even non-Chinese companies participating in the CPEC will be able to do bilateral trade via their Chinese principal companies, according to the publication.
“The dollar may remain the most dominant medium of exchange
for the foreseeable future. But if Islamabad and Beijing can
materialize their dream [to settle bilateral trade and investment
transactions in rupees and yuan], we can reduce our dependence on the
greenback gradually over a long time,” the head of a large Pakistani
bank told Dawn news in a comment.
The banker also said that once proper developments are made the free
flow of capital and cross-border transfer of lawful funds between the
two countries would become much easier, curbing the need for more
complex centralized international clearing systems in New York and
London.