Pakistan's central bank has allowed the Chinese yuan to be used for bilateral trade and investment activities, a move which could replace the US dollar for transactions in the strategic CPECBSE -4.45 % projects.
The State Bank of Pakistan (SBP) said on Monday that all arrangements for using the Chinese currency for trade and investment were already in place.
The adoption of yuan means that Pakistan and China would be able to replace the US dollar for transactionsin the USD 50 billion China Pakistan Economic Corridor (CPEC) projects.
Minister for Planning and Development Ahsan Iqbal had said on December 19 that the government was considering a Chinese proposal to use renminbi or yuan instead of the US dollar for payments in all bilateral trade.
"The SBP, in the capacity of the policy maker of financial and currency markets, has taken comprehensive policy related measures to ensure that imports, exports and financing transactions can be denominated in yuan," the Dawn reported today, quoting the bank's statement issued yesterday.
The decision was taken after rejecting a Chinese proposal to allow yuan as legal tender in Gwadar, Balochistan, it said.
The report said that public and private sector enterprises (both of Pakistan and China) were free to choose yuan for bilateral trade and investment activities.
A bank spokesman said the statement on yuan was issued because of too many queries from the media about the use of the currency for bilateral trade.
He said it seemed there was confusion about the use of yuan for bilateral trade which was needed to be clarified with a detailed statement.
In Pakistan, yuan is an approved currency for denominating foreign currency transactions.
The SBP has already put in place the required regulatory framework which facilitates the use of yuan in trade and investment transactions such as opening of letter of credits (LCs) and availing of financing facilities in yuan, the report said.
In terms of regulations in Pakistan, yuan is on par with other international currencies such as dollar, euro and Japanese yen.
In the financial year 2017, Pakistan exported goods and services worth USD 1.62 billion while the imports from China were USD 10.57 billion, reflecting a great imbalance.
The two countries have not yet finalised a free trade agreement (FTA). The FTA may benefit exports from Pakistan as the country critically needs to improve its exports due to huge trade deficits.
After signing a Currency Swap Agreement (CSA) with China's apex bank, the People's Bank of China (PBoC) in 2012, the bank had taken a series of steps to promote use of yuan in Pakistan for bilateral trade and investment with China.
The central bank has allowed banks to accept deposits and give trade loans in yuan.
"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 yuan nostro accounts," said the bank statement.
It said that considering the recent local and global economic developments, particularly with the growing size of trade and investment the CPEC, the bank foresees that yuan denominated trade with China will increase significantly and will yield long-term benefits for both the countries.
Re-disseminated by The Asian Banker from The Economic Times