Daily Times

The Pakistan Industrial and Traders Associations Front (PIAF), hailing the improvement in China-Pakistan bilateral trade volume in the Chinese Yuan (RMB), reaching more than 14 percent in 2023 from just two percent of 2018, said that it would reduce dependence on the US dollar, stabilizing foreign exchange reserves and strengthen the rupee against the greenback.

The PIAF Chairman Faheemur Rehman Saigol also appreciated the SBP to take concrete steps to facilitate this shift by designating three banks – the Industrial and Commercial Bank of China, the Bank of China, and Standard Chartered Bank to establish local RMB clearing and settlement setups. He said that this move was seen as a part of a broader strategy to ease pressure on Pakistan’s balance of payments and stabilize its fluctuating foreign exchange reserves, which are predominantly in US dollars.

The PIAF leader said that that the increase in RMB trade was a result of the Memorandum of Understanding (MoU) signed between the People’s Bank of China (PBC) and the SBP, authorizing ICBC to act as an RMB clearing bank in Pakistan. This shift towards RMB in trade transactions is not only significant for Pakistan but also marks a global trend.

According to reports, the Chinese yuan has ascended to the fourth most used currency in global settlements. In November, it surpassed Japan’s yen in international payments for the first time since January 2022, as reported by Swift international payment service. The yuan’s global usage for trade in November was at 4.61 percent, the highest since data collection began in 2015.

This increase is partly attributed to China’s push for using currencies other than the US dollar in its trade with countries like Russia, Middle East, and South America, particularly following Western sanctions on Russia due to its invasion of Ukraine.

In Pakistan, the increased use of the Chinese currency is also evident in its trade with Russia, particularly for fuel transactions, further underscoring the yuan’s growing prominence in international trade.

Faheemur Rehman Saigol said that the central banks of Pakistan and China earlier had agreed to make Rupee-Yuan clearing arrangements to reduce dependence on US dollar. He said that the establishment of the RMB clearing arrangement in Pakistan further boosted usage of RMB for cross-border transactions among Chinese and Pakistani enterprises and financial institutions. This also promoted 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 2021-22 under the currency swap agreement.

Accordingly, Pakistan had made available a total RMB40 billion to clear its import payments in the current fiscal year 2024, saving $6 billion in foreign reserves.

He said that the establishment of an RMB clearing unit in the country meant that Pakistan might no longer had to use its precious reserves of US dollars to trade with China. Moreover, when funding China-backed mega projects in the country, China too would not have to rely on sending Pakistan US dollars.

Earlier, the process was a bit complex. Pakistani customers made payments to local banks, which then transfer money to New York where settlements took place. From there, the money flown to the respective Chinese bank where the US dollars were converted into RMB.