KARACHI: The State Bank of Pakistan (SBP), in the capacity of the policymaker of financial and currency markets, has taken comprehensive policyrelated measures to ensure that imports, exports and financing transactionscan be denominated in CNY.
A statement here on Tuesday said that both public and privatesector enterprises (i.e. both Pakistanis and Chinese) are free tochoose CNY for bilateral Trade and Investment activities.
As per current foreign exchange regulations, Chinese Yuan (CNY)is an approved foreign currency for denominating foreign currencytransactions in Pakistan.
SBP has already put in place the required regulatory frameworkwhich facilitates use of CNY in trade and investment transactions such asopening of L/Cs and availing financing facilities in CNY.
In terms of regulations in Pakistan, CNY is at par with otherinternational currencies such as USD, Euro and JPY etc.
The SBP statement mentioned that after signing Currency SwapAgreement (CSA) with People’s Bank of China (PBoC), SBP had taken a seriesof steps to promote use of CNY in Pakistan for bilateral trade andinvestment with China.
SBP allowed banks to accept CNY deposits and give CNY Trade loans (link).
For onward lending the proceeds of CSA, SBP has put in place theloan mechanism for banks to get the CNY financing from SBP foronward lending to importers and exporters having underlying tradetransactions denominated in CNY.
The modus operandi of this liquidity facility for banks is alreadyexplained in SBP Circular No 9 of 2013 (link)Industrial and Commercial Bank of China Limited (ICBC) Pakistan has beenallowed to establish a local CNY settlement and clearing setup in Pakistanenabling it to open CNY accounts of the banks operating in Pakistan and tofacilitate settlement of CNY based transactions such as remittance to/fromChina.
With the opening of Bank of China in Pakistan, the access to onshoreChinese markets will strengthen further.
Apart from the above, several banks in Pakistan maintain onshore CNY nostroaccounts.
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 willincrease significantly, going forward and will yield long term benefits forboth the countries, the SBP statement added.