Pakistan will join a growing list of central banks that will invest in China's interbank market as the world's second-largest economy opens its capital markets. The People's Bank of China announced on Monday that it had signed an agreement with the State Bank of Pakistan to help Pakistan invest in its local debt market, without providing details about the size of the investment programme.
China has allowed foreign central banks to invest in its domestic interbank bond market since 2010 as part of efforts to widen investment avenues for foreign yuan asset holders and promote the international use of the Chinese currency. China and Pakistan signed a three-year currency swap deal worth 10 billion yuan ($1.60 billion) in December 2011 and companies in the two countries are encouraged to accept export and import bills in Chinese yuan. The central banks of Japan, South Korea, Singapore, Thailand, Hong Kong and Indonesia are among those who invest in China's bonds onshore.
Besides central banks, China also allows yuan clearing banks in Hong Kong and Macau and foreign banks that help settle cross-boarder trade in yuan to invest in its interbank bond markets.
A press release issued by State Bank of Pakistan adds: In a major development, the State Bank of Pakistan has signed agreement with The People's Bank of China to start investment in the Chinese Interbank Bond Market. Dr Zhou Xiaochuan, Governor, The People's Bank of China, and Yaseen Anwar, Governor SBP signed an Agency Agreement regarding Bond Investment in the Interbank Bond Market of China, which permits SBP to conduct investment activity in the Chinese Interbank Bond Market.
The ceremony took place at the PBoC Head Office in Beijing. The Chinese Interbank Bond Market is the largest RMB denominated bond market with RMB 21.4 trillion turnover during 2011. This agreement represents the manifestation of close collaboration between The People's Bank of China and State Bank of Pakistan that has been built over time.
The agreement is also part of follow-up co-operation to the bilateral Currency Swap Agreement between the two Central Banks. Access to the Chinese Bond Market will provide the necessary flexibility to SBP in diversifying and optimal management of Foreign Exchange Reserves to meet the associated objectives. In December 2011, Pakistan and China was signed a three-year currency swap deal worth 10 billion yuan ($1.6 billion) and companies in the two countries are encouraged to accept export and import bills in Chinese yuan.
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