Pakistan China take a leap forward in ditching dollar in bilateral trade
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KARACHI: Pakistan and China have taken a big leap forward in arena of bilateral currencies swap and operations for CPEC projects and subsequent trade.
The State Bank of Pakistan on Wednesday granted Bank of China permission to establish yuan settlement and clearing mechanism in a major step to encourage trade with Chinese currency and eventually in the respective local currencies.
This move could further bolster the size of trade and investment with China under China-Pakistan Economic Corridor (CPEC).
“In order to further strengthen the trade channels and remittance flows in Chinese yuan, SBP has now allowed Bank of China (BoC) Pakistan to establish a local yuan settlement and clearing setup in Pakistan,” the State Bank of Pakistan (SBP) said in a statement.
“BoC can open yuan accounts of the banks operating in Pakistan, to facilitate settlement of yuan-based transactions such as remittance to/from China. BoC can also provide yuan liquidity to the interbank market for the settlement of yuan-based transactions.”
The SBP expects this settlement and clearing mechanism to reduce costs and increase efficiency for the local banking system in transacting in Chinese yuan, enhance market liquidity and facilitate settlement of growing trade and investment transactions between China and Pakistan in the said currency.
“Keeping in view the recent local and global economic developments, SBP expects this initiative to yield long-term benefits to China-Pakistan relationship in general, and Pakistan’s economy and banking system in particular,” it said.
SBP signed a currency swap agreement with the People’s Bank of China with the objective of promoting bilateral trade and financing direct investment between the two countries in the respective local currencies.
It is worth noting that back in 2015 SBP had allowed Industrial and Commercial Bank of China Limited (ICBC) Pakistan to offer similar services.
