IslamabadL: Pakistan Industrial and Traders Associations Front (PIAF) has expressed appreciation for the notable increase in China-Pakistan bilateral trade volume in Chinese Yuan (RMB), rising from a mere two percent in 2018 to over 14 percent in 2023.
PIAF Chairman Faheemur Rehman Saigol commended the strategic move to diminish reliance on the US dollar, expecting positive impacts on foreign exchange reserves and the strengthening of the Pakistani rupee against the greenback.
Saigol also acknowledged the State Bank of Pakistan (SBP) for its proactive measures, designating key banks such as the Industrial and Commercial Bank of China, the Bank of China, and Standard Chartered Bank to establish local RMB clearing and settlement setups.
This initiative aims to ease pressure on Pakistan’s balance of payments and stabilize fluctuating foreign exchange reserves, primarily denominated in US dollars.
The PIAF leader highlighted the rise in RMB trade as a result of the Memorandum of Understanding (MoU) between the People’s Bank of China (PBC) and the SBP, authorizing the Industrial and Commercial Bank of China (ICBC) to act as an RMB clearing bank in Pakistan.
This shift toward RMB transactions not only holds significance for Pakistan but also aligns with a global trend.
Independent reports indicate that the Chinese yuan has become the fourth most used currency in global settlements, surpassing Japan’s yen in international payments.
In November, the yuan’s global trade usage reached 4.61 percent, the highest since data collection began in 2015.
This surge is attributed partly to China’s efforts to diversify currencies in its international trade, especially with countries like Russia, the Middle East, and South America, following Western sanctions on Russia due to the Ukraine invasion.
In Pakistan, the increased adoption of the Chinese currency is evident in trade with Russia, particularly for fuel transactions, highlighting the yuan’s growing prominence in international trade. Saigol emphasized that the central banks of Pakistan and China had agreed to Rupee-Yuan clearing arrangements to reduce dependence on the US dollar.
The establishment of RMB clearing in Pakistan has further stimulated the use of RMB for cross-border transactions among Chinese and Pakistani enterprises and financial institutions, fostering bilateral trade and investment. Notably, Beijing and Islamabad engaged in bilateral trade in Chinese currency worth RMB30 billion in the fiscal year 2021-22 under a currency swap agreement.
Pakistan allocated a total of RMB40 billion to clear its import payments in the fiscal year 2024, resulting in savings of US $6 billion in foreign reserves. Saigol emphasized that the presence of an RMB clearing unit in the country could potentially eliminate the need to utilize precious US dollar reserves for trade with China.
This streamlined approach contrasts with the previous complex process, where Pakistani customers made payments to local banks, leading to a transfer of funds to New York for settlements before conversion to RMB in the respective Chinese bank.