Surge in Pak, China trade volume attributed to transactions in Chinese currency
The
Pakistan Industrial and Traders Associations Front (PIAF) has commended the
significant increase in bilateral trade between Pakistan and China conducted in
Chinese Yuan (RMB). This trade volume has surged to over 14% in 2023, compared
to a mere 2% in 2018. PIAF believes that this shift will contribute to reducing
dependence on the US dollar, leading to the stabilization of foreign exchange
reserves and fortifying the Pakistani rupee against the greenback.
Chairman Faheemur Rehman Saigol expressed appreciation for the State Bank of Pakistan's (SBP) proactive measures in facilitating this transition. The designation of three banks—Industrial and Commercial Bank of China, Bank of China, and Standard Chartered Bank—to establish local RMB clearing and settlement setups is seen as a crucial step. Saigol emphasized that this move aligns with a broader strategy aimed at easing pressure on Pakistan's balance of payments and stabilizing its fluctuating foreign exchange reserves, primarily held in US dollars.
ICBC
appointed as RMB clearing bank to foster Sino-Pak cross-border transactions
The increased use of the Chinese yuan in global settlements has positioned it as the fourth most utilized currency worldwide.
In November, it surpassed Japan's yen in international payments, marking a shift that has been influenced by China's efforts to diversify currencies used in its trade, especially with countries like Russia, the Middle East, and South America. This diversification gained momentum following Western sanctions on Russia in response to its invasion of Ukraine.
In Pakistan, the growing prominence of the Chinese currency is evident in trade with Russia, particularly in fuel transactions.
Saigol highlighted the significance of the Memorandum of Understanding (MoU) between the People's Bank of China (PBC) and the SBP, which authorized the Industrial and Commercial Bank of China (ICBC) to act as an RMB clearing bank in Pakistan. This transition not only benefits Pakistan but also reflects a global trend.
Bank
of China branch opens in Islamabad
Saigol mentioned that the central banks of Pakistan and China had previously agreed to establish Rupee-Yuan clearing arrangements,
aiming to reduce dependence on the US dollar. The establishment of the RMB clearing unit in Pakistan has further boosted the use of RMB in cross-border transactions between Chinese and Pakistani entities, fostering bilateral trade and investment.
In the fiscal year 2021-22, Beijing and Islamabad conducted bilateral trade in Chinese currency amounting to RMB 30 billion under a currency swap agreement. For the fiscal year 2024, Pakistan has made RMB 40
billion available to clear its import payments, potentially saving $6 billion in foreign reserves. Saigol highlighted that with the RMB clearing unit in place, Pakistan may no longer need to dip into its precious US dollar reserves for trade with China, streamlining the process and potentially benefiting both nations in major projects without reliance on US dollars.
Source:
The Nation