ISLAMABAD: As the central banks of Pakistan and China have agreed to make Rupee-Yuan clearing arrangements to reduce dependence on US dollar, the All Pakistan Business Forum (APBF) has hailed the decision, saying it would stabilize foreign exchange reserves and strengthen the rupee against the greenback.
APBF President Syed Maaz Mahmood said that 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. This will also promote bilateral trade and investment between the two countries, he added. Beijing and Islamabad conducted bilateral trade in Chinese currency worth RMB30 billion in the fiscal year 2020-21 under the currency swap agreement. He said that China increased financing in Chinese currency by an additional RMB10 billion under the CSA during the premier’s visit this week.
Accordingly, Pakistan has now made available a total RMB40 billion to clear its import payments in the current fiscal year 2023, saving $6 billion in in foreign reserves.
APBF Chairman Ibrahim Qureshi said that the establishment of an RMB clearing unit in the country means that Pakistan may no longer have to use its precious reserves of US dollars to trade with China. Moreover, when funding China-backed mega projects in the country, China too will not have to rely on sending Pakistan US dollars.
Ibrahim Qureshi 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.
Syed Maaz Mahmood observed that 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, he said.
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, which 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.
We will be able to avoid this long procedure and the settlement would be made by both banks, so this is very good for trade.
The APBF President said that the trade between Pakistan and China is heavily tilted in Beijing’s favor, comprising more imports and fewer 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.
At present, the emerging markets demonstrated a low elasticity of demand for US dollars. The currencies of developing countries will inevitably depreciate as a result of a possible negative spillover effect caused by a surge in USD interest rates and a monetary tightening cycle.
He stated that the agreement will also help boost the country’s foreign exchange reserves significantly this year and appreciate the rupee to below Rs200 against the greenback.
He said that China stands as Pakistan’s single largest trading partner, as Islamabad imported goods and services worth $18 billion from Beijing last year, of which import payments worth $4.5 billion were made in Chinese yuan, meaning Pakistan’s reliance on the greenback was cut down by $4.5 billion last year.