Pak-China newest trade arrangements

Recently, the central banks of Pakistan and China have agreed to make Rupee-Yuan clearing arrangements to reduce dependence on the US dollar, the decision has been hailed by the entire spectrum of business society. According to the business leaders, the establishment of the RMB clearing arrangement in Pakistan will further boost the usage of RMB for cross-border transactions among Chinese and Pakistani enterprises and financial institutions. This will also promote bilateral trade and investment between the two countries and will stabilize foreign exchange reserves and strengthen the rupee against the greenback.

Historically, Trump’s weaponization of the dollar sensitized the world nations about the grave consequences of the world’s utter dependence on the American dollar while recent events including the global economic and energy crises and the war in Ukraine deepened the dollar’s in the world. The dollar’s monopoly as a single trading currency badly impacted developing nations and vulnerable communities amid a global recession around the world. Over the past few months, multiple factors such as global energy and food crises, and domestic recession in the US market along with high-interest rates created the economic upheavals in other nations including Pakistan. This situation compelled the other nations to liberate their currencies from the dollar’s dominance, use an alternative currency, return to barter trade, use cryptocurrency, or other methods for bilateral trading.

Fundamentally, Pakistan has a highly volatile currency and server political instability, whereas both sensitive pillars of national financial stability remained instrumental in tarnishing the Country’s economic outlook throughout history. The continuous depreciation of the Pakistani rupee vis-a-vis the US dollar has deepened the country’s energy and food crisis, massively added to the domestic and foreign loans, and shattered the national economy. According to financial experts, recurrent noisediving of local currency and continuous dollar appreciation has become a psychological phenomenon for the public in general and the business community and the currency mafia in particular, who often vanish the dollar from the market for profit making and causes financial crisis in the country.

China is the largest trading partner of Pakistan and also a big investor in the country, while bilateral trade of both nations has reached over $ 18 billion which caused a significant stress on Pakistan’s dollar reserves. The Pak-China decision for the establishment of the RMB clearing arrangement in Pakistan will further boost the usage of RMB for cross-border transactions among Chinese and Pakistani enterprises and financial institutions. This will not only promote bilateral trade and investment between the two countries, but reduce pressure of hard earned foreign reserves of the country. In fact, it is a delayed decision of our policymakers in the right direction while there is urgent need of conclusion of such arrangements with other trading partners to ease pressure on exchange reserves and reduce Pakistan’s on dollar in the future.