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“Implementation of new financial currency regime by direct conversion of Chinese currency ‘RMB’ to Pakistani Rupees without going through the US Dollar will save Chinese investors 50 lakh Pakistani Rupees per transaction of Rs. . 10 million,” said Liao Longtai, general manager (GM) of his Hangeng Trade Company in Gwadar.
“The new mechanism will boost our confidence and more investors will flock to invest in Pakistan in general and Gwadar in particular,” he said.
“In the previous financial system, Chinese traders and investors had to first convert the renminbi to the US dollar and then to the Pakistani rupee. Due to the volatile value of the US dollar, Chinese traders The new yuan-rupee direct exchange mechanism has finally put an end to losses for Chinese investors,” he added. Hundreds of Chinese companies operate in Pakistan in energy, telecommunications, automotive, agriculture, healthcare, transportation, infrastructure, industry and many other sectors. His GM of Hangeng Trade Company, Liao Longtai, is one of thousands of Chinese officials calling the development a tipping point to accelerate trade between Pakistan and China.
The breakthrough has also eased a sense of reluctance among potential Chinese companies interested in making new investments in CPEC projects. In the past, one of their biggest concerns was the economic damage caused by Pakistan’s unpredictable exchange rate.
According to a memorandum of cooperation between the People’s Bank of China (PBOC) and the National Bank of Pakistan, the PBOC has decided to give the Karachi branch of the Industrial and Commercial Bank of China (ICBC) the function of the RMB clearing bank of Pakistan. This was announced by the PBOC last week. Undertake supervisory and regulatory tasks. Officials from ICBC, as well as senior officials from the Chinese Consulate in Karachi and the Bank of China, traveled to Gwadar this week to check on the progress of the CPEC project.
Luo Jianxue, president of the Overseas Chinese Association of Lahore, said the direct exchange of Chinese and Pakistani currencies could reduce ties, save capital exchange costs, and become immune to changes in the US dollar exchange rate. Yang Yang, Trade Advisor at the Chinese Consulate in Lahore, said on July 13, 2021, China and Pakistan renewed her RMB 30 billion (Rs 730 billion) bilateral currency swap agreement.
Pakistan’s joining the RMB clearing club is a good sign, as RMB payments between China and Belt and Road countries reached RMB 5.42 trillion (US$763.4 billion) in 2021, up 19.6% year-on-year increased from It accounted for 14.8% of China’s total cross-border RMB usage in 2021, according to a report released by the People’s Bank of China.
By the end of 2021, China has signed bilateral currency swap agreements with 22 Belt and Road countries and RMB clearing agreements with eight Belt and Road countries.
The Pakistani government is considering the option of doing business in renminbi for CPEC investors, especially companies in the Gwadar Free Zone, to protect them from economic losses caused by a downward spiral of the Pakistani currency against the US dollar. I was.
The issue was raised by COPHCL Chairman Zhang Baozhong a few months ago when he briefed Prime Minister Shahbaz Sharif at the Federal Steering Committee on the Gwadar Initiative about concerns about deterring Chinese investment in Gwadar related to currency devaluation. Got attention. He requested that Chinese investors be able to hold RMB accounts in the Gwadar Free Zone without having to convert their invested money into rupees.
Prior to this, Prime Minister Shebaz Sharif will hold meetings with the State Bank of Pakistan (SBP) with the Industrial and Commercial Bank of China (ICBC) and the Bank of China on using RMB/PKR for China-Pakistan bilateral trade. I ordered you.
Prime Minister Shebaz said at a meeting with Chinese businessmen on May 30 this year that he gave instructions to the SBP. In order to promote RMB trading, a pilot project to introduce “RMB pricing” will be launched as the first step.
The second phase will focus on RMB settlement and funding policies. The exchange rates of the currencies of both countries are set by China’s foreign exchange trading system “CFETS”. And with a licensed bank duly declared as the cross-border forex market of China and Pakistan.