Islamabad, 30 January 2024 (TDI) – According to the Pakistan Industrial and Traders Associations Front (PIAF), the growth of China-Pakistan trade in the Chinese Yuan (RMB) from two percent in 2018 to over 14 percent in 2023 would lower the reliance on the US dollar, stabilize the foreign exchange reserves, and boost the rupee’s value.
The PIAF chairman, Faheemur Rehman Saigol, praised the SBP for taking concrete steps to enable this transition by appointing three banks: the Industrial and Commercial Bank of China (ICBC), the Bank of China, and Standard Chartered Bank to set up local RMB clearing and settlement systems.
He said that this move was part of a wider strategy to ease the strain on Pakistan’s balance of payments and stabilize its volatile foreign exchange reserves, which are mainly in US dollars.
The PIAF chairman said that the rise in RMB trade was due to the Memorandum of Understanding (MoU) signed between the People’s Bank of China (PBC) and the SBP, allowing ICBC to act as an RMB clearing bank In Pakistan.
This shift towards RMB in trade transactions is not only important for Pakistan but also reflects a global trend. Reports indicate that the Chinese yuan has risen to the fourth most used currency in global settlements.
It overtook Japan’s yen in international payments for the first time since January 2022, according to SWIFT international payment service. The yuan’s global share of trade in November reached 4.61 percent, the highest since data collection started in 2015.
This growth is partly due to China’s efforts to use other currencies besides the US dollar in its trade with countries such as Russia, Middle East, and South America, especially after Western sanctions on Russia for invading Ukraine.
Pakistan also shows an increased use of the Chinese currency in its trade with Russia, particularly for fuel transactions, highlighting the yuan’s rising importance in international trade.
Faheemur Rehman Saigol said that the central banks of Pakistan and China had previously agreed to set up Rupee-Yuan clearing arrangements to lower the reliance on US dollar.
He said that the RMB clearing arrangement in Pakistan enhanced the use of RMB for cross-border transactions among Chinese and Pakistani businesses and financial institutions.
This boosted bilateral trade and investment between the two countries, he added. Beijing and Islamabad carried out bilateral trade in Chinese currency worth RMB30 billion in the fiscal year 2021-22 under the currency swap agreement.
As a result, Pakistan had allocated a total of RMB40 billion to settle its import payments in the current fiscal year 2024, saving $6 billion in foreign reserves.
He said that the RMB clearing unit in the country implied that Pakistan might not need to use its valuable reserves of US dollars to trade with China.
Furthermore, when financing China-supported mega projects in the country, China would also not depend on sending Pakistan US dollars. Previously, the process was a bit complicated. Pakistani customers paid local banks, which then transferred money to New York where settlements occurred.
From there, the money flew to the relevant Chinese bank where the US dollars were exchanged for RMB.