The State Bank of Pakistan (SBP) on Tuesday said that Pakistani and Chinese enterprises are free to trade and invest in Chinese Yuan (CNY) instead of US dollar-dominating currency for international trade. In this regard, Industrial and Commercial Bank of China Limited (ICBC) Pakistan has been allowed to establish a local CNY settlement and clearing setup in Pakistan enabling it to open CNY accounts of the banks operating in Pakistan and to facilitate settlement of CNY based transactions such as remittance to/from China.
The State Bank, in capacity of policymaker of financial and currency markets, has taken comprehensive policy related measures to ensure that imports, exports and financing transactions can be denominated in CNY. "Both public and private sector enterprises (ie both Pakistanis and Chinese) are free to choose CNY for bilateral Trade & Investment activities," SBP said.
As per current foreign exchange regulations, Chinese Yuan (CNY) is an approved foreign currency for denominating foreign currency transactions in Pakistan. SBP has already put in place the required regulatory framework which facilitates use of CNY in trade and investment transactions such as opening of L/Cs and availing financing facilities in CNY. In terms of regulations in Pakistan, CNY is at par with other international currencies such as USD, Euro and JPY etc.
After signing Currency Swap Agreement (CSA) with People''s Bank of China (PBoC), SBP had taken a series of steps to promote use of CNY in Pakistan for bilateral trade and investment with China. SBP allowed banks to accept CNY deposits and give CNY Trade loans. SBP in its Circular No. 04 of 2012 issued on September 04, 2012 has already allowed Authorized Dealers to open foreign currency accounts and extend trade loans under FE-25 Scheme in US Dollar (USD), Pound Sterling (GBP), Euro (EUR), Japanese Yen (JPY), Canadian Dollar (CAD), UAE Dirham (AED), Saudi Riyal (SAR), Chinese Yuan (CNY), Swiss Franc (CHF) and Turkish Lira (TRY).
For onward lending the proceeds of CSA, SBP has put in place the loan mechanism for banks to get the CNY financing from SBP for onward lending to importers and exporters having underlying trade transactions denominated in CNY. The modus operandi of this liquidity facility for banks is already explained in SBP Circular No 9 of 2013, which allows Authorized Dealers to take FE25 deposits and extend FE25 loans in Chinese Yuan (CNY) for financing of Imports / Exports. The permission was granted after the Currency Swap Arrangement executed between State Bank of Pakistan (SBP) and the People''s Bank of China (PBoC) on December 23, 2011.
Industrial and Commercial Bank of China Limited (ICBC) Pakistan has been allowed to establish a local CNY settlement and clearing setup in Pakistan enabling it to open CNY accounts of the banks operating in Pakistan and to facilitate settlement of CNY-based transactions such as remittance to/from China. With the opening of Bank of China in Pakistan, the access to onshore Chinese markets will strengthen further. Apart from the above, several banks in Pakistan maintain onshore CNY Nostro accounts.
Considering the recent local and global economic developments, particularly with the growing size of trade and investment with China under CPEC, SBP foresees that CNY denominated trade with China will increase significantly, going forward; and will yield long term benefits for both the countries.
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