Pakistan to utilize Chinese currency for funding new CPEC’s projects

ISLAMABAD, Nov.6 (INP) Pakistan has agreed with China for allowing utilization of Chinese currency RMB for execution of all new projects of energy sector under multi-billion dollars China Pakistan Economic Corridor (CPEC).

Instead of US dollar, use of RMB will be a major development if this agreement turns into reality. Now a summary will be moved before the Economic Coordination Committee (ECC) of the Cabinet for getting formal approval to this effect.

Sino-Pak Joint Working Group (JWG) is already agreed to use RMB for all new energy projects in Pakistan. The JWGs meetings held last week between Pakistan and China teams prior to upcoming the Joint Coordination committee (JCC) meeting scheduled to be held in Islamabad this week, reports Gwadar Pro Net, quoting official sources.

In the JWG meeting, Pakistan and China evolved consensus that RMB would be used for making arrangement to execute all new projects of energy sector under CPEC. This important development was also shared in a roundtable organized by Pakistan China Institute (PCI) led by Senator Mushahid Hussain Sayed in Karachi on last Sunday.

The delegation of parliamentarians and media persons also participated in this roundtable. The MPs team was on three-day visit to witness different CPEC projects completed at Port Qasim and Islamkot, Thar.

Earlier in a bid to promote trade between Belt and Road countries, China has been encouraging all its partners to trade in Yuan also. For Pakistan, this is a bright prospect since it will reduce pressure on Pakistan’s foreign exchange reserves. However, officials of the two countries considered it necessary that the huge trade imbalance that exists is brought down, through business-business agreements. As part of the China-Pakistan Free-Trade-Agreement (FTA) phase II, Pakistan is now at par with the ASEAN countries.

In order to reduce dependency on the greenback gradually over time, Pakistan decided to use Chinese yuan for bilateral trade as well.Through this move, the two countries aimed to promote monetary cooperation between the central banks, implement existing currency-swap arrangements, research to expand the amount of currency and explore to enrich the use and scope of bilateral currency swap and assign the foreign currency to domestic banks through credit-based bids to support the financing for projects along the China-Pakistan Economic Corridor (CPEC).

This means Pakistani and Chinese banks will, in the course of time, be able to open import letters of credit in rupees and yuan (also known as renminbi, or RMB). Moreover, Pakistan will be able to pay for imports from China in yuan rather than in dollars, and Chinese companies investing in CPEC projects will bring in yuan-denominated funds here and remit back their profits and dividends also in yuan instead of dollars or other foreign currencies.

Industrial and Commercial Bank of China Ltd (ICBC) Pakistan has been allowed to establish a local yuan settlement and clearing setup in Pakistan enabling it to open yuan accounts of the Chinese banks operating in Pakistan and to facilitate settlement of yuan-based transactions such as remittance to/from China.

It is believed that with the opening of Bank of China in Pakistan, the access to Chinese markets will strengthen further. Considering the recent local and global economic developments, particularly with the growing size of trade and investment with China under CPEC, yuan denominated trade with China will increase significantly and will yield long term benefits for both the countries.