SBP Allows Bank of China to Open Yuan Accounts of Local Banks. Pak China friendship is getting into a new level as recently State Bank of Pakistan (SBP) has signed a Currency Swap Agreement (CSA) with People’s Bank of China (BOC). The decision has been taken in order to promote the mutual trade and financing direct investment between two countries in the respective local currencies.
Today a spokesperson from SBP told the news source that State Bank of Pakistan (SBP) has continuously been taking policy measures to make sure that imports, exports and financing transactions with China can be denominated in Chinese Yuan (CNY).
According to this agreement, BOC Pakistan will start a local CNY settlement and clearing setup in Pakistan. In order to smooth the progress of settlement of Yuan based transactions like remittance to/from China; BOC is allowed to open Yuan (CNY) accounts of the banks operating in Pakistan.
Furthermore, BOC can also offer Yuan liquidity to the interbank market for the settlement of Yuan based transactions.
Backed in Dec 2017, Minister for Planning and Development Ahsan Iqbal had also mentioned this proposal. He said that the government was taking into consideration a Chinese proposal to use renminbi (RMB or yuan) as an alternative of the US dollar for payments in all bilateral trade between China and Pakistan.
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SBP issued a statement in this regard,
“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 decision is taken for both public and private sector enterprises (Pakistanis and Chinese) as they are free to choose yuan for bilateral trade and investment activities in this regard.
“These steps are part of the efforts by SBP to encourage trade with China in Yuan and eventually in the respective local currencies. This settlement and clearing mechanism is expected to reduce costs and increase efficiency for the local banking system in transacting in Yuans,” the spokesperson stated.
However, the currency swaps will improve market liquidity and ease settlement of rising trade and investment transactions between China and Pakistan in Chinese Yuan.