KARACHI: Pakistan and China have taken a big leap forward in arena ofbilateral currencies swap and operations for CPEC projects and subsequenttrade.

The State Bank of Pakistan on Wednesday granted Bank of China permission toestablish yuan settlement and clearing mechanism in a major step toencourage trade with Chinese currency and eventually in the respectivelocal currencies.

This move could further bolster the size of trade and investment with Chinaunder China-Pakistan Economic Corridor (CPEC).

“In order to further strengthen the trade channels and remittance flows inChinese yuan, SBP has now allowed Bank of China (BoC) Pakistan to establisha local yuan settlement and clearing setup in Pakistan,” the State Bank ofPakistan (SBP) said in a statement.

“BoC can open yuan accounts of the banks operating in Pakistan, tofacilitate settlement of yuan-based transactions such as remittance to/fromChina. BoC can also provide yuan liquidity to the interbank market for thesettlement of yuan-based transactions.”

The SBP expects this settlement and clearing mechanism to reduce costs andincrease efficiency for the local banking system in transacting in Chineseyuan, enhance market liquidity and facilitate settlement of growing tradeand investment transactions between China and Pakistan in the said currency.

“Keeping in view the recent local and global economic developments, SBPexpects this initiative to yield long-term benefits to China-Pakistanrelationship in general, and Pakistan’s economy and banking system inparticular,” it said.

SBP signed a currency swap agreement with the People’s Bank of China withthe objective of promoting bilateral trade and financing direct investmentbetween the two countries in the respective local currencies.

It is worth noting that back in 2015 SBP had allowed Industrial andCommercial Bank of China Limited (ICBC) Pakistan to offer similar services.