KARACHI – The State Bank of Pakistan (SBP) on Tuesday said that doors were opened for using Chinese Yuan (CNY) in bilateral trade with China, boosting the financial ties between the all-weather strategic partners.
According to a press release, “State Bank of Pakistan, in the capacity of the policy maker of financial & currency markets, has taken comprehensive policy related measures to ensure that imports, exports and financing transactions can be denominated in CNY. Both public and private sector enterprises (i.e. both Pakistanis and Chinese) are free to choose CNY for bilateral Trade & Investment activities”.
The move comes after Minister for Planning and Commission Ahsan Iqbal hinted at using Chinese currency for trade and investment activities.
He had stated after holding a meeting with Chinese Ambassador Yao Jing in December last year when both dignitaries launched the plan for 2017-30 that set out the building conditions of China Pakistan Economic Corridor (CPEC).
In Nov 2017, Pakistan has rejected China’s demand to allow its currency to be used in the Gwadar Free Zone under the CPEV framework.
The central bank said, “Chinese Yuan (CNY) is an approved foreign currency for denominating foreign currency transactions in Pakistan. SBP has already put in place the required regulatory framework which facilitates use of CNY in trade and investment transactions such as opening of L/Cs and availing financing facilities in CNY”.
In terms of regulations in Pakistan, Chinese currency is at par with other international currencies such as US dollar, Euro and Japanese Yen etc.
After signing Currency Swap Agreement (CSA) with People’s Bank of China (PBoC) in 2012, SBP had taken a series of steps to promote use of CNY in Pakistan for bilateral trade and investment with China,” it added.
The statement added that SBP allowed banks to accept CNY deposits and give CNY Trade loans. “For onward lending the proceeds of CSA, SBP has put in place the loan mechanism for banks to get the CNY financing from SBP for onward lending to importers and exporters having underlying trade transactions denominated in CNY”.
Industrial and Commercial Bank of China Limited (ICBC) Pakistan has been allowed to establish a
local CNY settlement and clearing setup in Pakistan enabling it to open CNY accounts of the banks
operating in Pakistan and to facilitate settlement of CNY based transactions such as remittance to/from
China.
With the opening of Bank of China in Pakistan, the access to onshore Chinese markets will
strengthen further. Apart from the above, several banks in Pakistan maintain onshore CNY nostro
accounts.
The central bank added it is considering the recent local and global economic developments, particularly with the growing size of trade and investment with China under CPEC, SBP foresees that CNY denominated trade with China will increase significantly, going forward; and will yield long term benefits for both the countries.
In fiscal year 2017, Pakistan exported items worth $1.62 billion and imported goods worth Rs $10.57bn, showing a significant trade deficit. It is to mention that both countries have not signed any free trade agreement.
