KARACHI: The central banks of China and Pakistan have signed an agreement on establishing RMB (Renminbi) clearing arrangements in Pakistan, a move that would decrease both countries’ reliance on US dollars, analysts and traders said on Thursday.
The Memorandum of Understanding (MoU) was signed between the People’s Bank of China (PBoC) and the State Bank of Pakistan (SBP) on Wednesday. Governor SBP Jameel Ahmad and Governor PBoC Yi Gang inked the memorandum, the PBOC said.
“The establishment of the RMB clearing arrangement in Pakistan will further boost usage of RMB for cross-border transactions among Chinese and Pakistani enterprises and financial institutions,” the PBOC said in a statement.
“This will also promote bilateral trade and investment between the two countries,” the bank added.
No more details were offered by both sides at the time of the signing. However, Pakistani analysts and traders said the move was meant to reduce reliance on the US dollar. The decision comes at a time when Islamabad faces huge forex reserves depletion as the rupee faces pressure from increasing imports.
“The development is meant [to bring about] less reliance on the USD (US dollar) and [encourage] more trade in RMB,” Muhammad Sohail, Chief Executive Officer of Topline Securities, told Arab News. Topline Securities is a Karachi-based brokerage firm.
Pakistani traders said the decision will make bilateral trade between the two countries more competitive and avoid the lengthy process of routing dollar settlements through New York.
“The major benefit of this agreement would be that Chinese products that will come to Pakistan or the Pakistani products that will go to China will be more competitive due to transactions in our own currencies,” Jawaid Ilyas, Chairman of the Pakistan-China Business Council told Arab News.
Most dollar base payments and settlements conducted by local banks are cleared in New York for international payments. From there, the currency is sent to the respective bank for its conversion into local currencies.
At present, the process is a bit complex. Pakistani customers make payments to local banks, who then transfer money to New York where settlements take place. From there, the money flows to the respective Chinese bank where the US dollars are converted into RMB, according to the Pakistani traders.
“We will be able to avoid this long procedure,” Ilyas explained. “Now, the settlement would be made by both banks, so this is very good for trade.”
Ilyas said a maximum level of currency swap would be decided by both banks, which they haven’t disclosed.
The trade between Pakistan and China is heavily tilted in Beijing’s favor, comprising more imports and less exports.
Overall, exports from Pakistan to China have increased by 2 percent to $2.57 billion during the first nine months of the current calendar year. The bilateral trade volume remained at $20.19 billion with 3 percent growth when compared to the same period in 2021, according to official data shared by China.
