Pakistan, China sign currency swap agreement

Published: December 24, 2011

State Bank of Pakistan (SBP) and People’s Bank of China (PBC) signed the currency swap arrangement in Islamabad.

ISLAMABAD: Pakistan and China on Friday signed a currency swap arrangement to promote bilateral trade and investment and strengthen financial cooperation.

State Bank of Pakistan (SBP) and People’s Bank of China (PBC) signed the currency swap arrangement in Islamabad, announced the central bank. The agreement was signed by SBP Governor Yaseen Anwar and PBC Deputy Governor DU Jinfu.

This is the second currency swap agreement that the government has signed with any country. Earlier, Pakistan and Turkey inked a similar arrangement with an option to trade in each other’s currencies equivalent to $1 billion.

An official handout said the bilateral currency swap arrangement has been concluded in 10 billion Chinese yuan and 140 billion Pakistani rupees. The programme will expire in three years, but can be extended with mutual consent. Pakistani importers can pay for Chinese goods in local currency.

“We expect that bilateral trade and investment will grow between Pakistan and China as a result of this agreement, further augmenting economic ties between the two countries,” it added. This agreement will contribute significantly to further strengthening close and special relationship between the two countries.

The currency swap agreement will give a positive signal to the market on availability of the other country’s currency on the onshore market, said the central bank, adding as a result it will promote bilateral trade denominated in Chinese yuan and Pakistani rupee.

Arrangement raises questions

However, industry insiders suspect that China will later convert the arrangement into a loan as it has expressed little interest in trading in Pakistani currency. On the loan, it can charge mark-up at a rate more than the Shanghai interbank market rate.

The insiders said when Pakistan proposed Beijing to sign the currency swap agreement China refused to deal in Pakistani currency. They said Pakistan had also proposed China to buy its treasury bills with the swap money, but Beijing refused.

They said Pakistani importers may still have to pay in Chinese currency despite signing of the swap arrangement.

Despite repeated attempts, State Bank officials were not available for comment.

Total volume of bilateral trade was $7.4 billion last year, tilted in favour of China. Pakistan’s exports to China stood at $1.6 billion compared to imports worth $5.8 billion, showing a deficit of $4.2 billion, said the commerce ministry.

Published in The Express Tribune, December 24th, 2011.


Reader Comments (6)

  • mirror image
    Dec 24, 2011 - 12:50PM

    haha….another in trap….

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  • whoever
    Dec 24, 2011 - 5:48PM

    It is neither beneficial nor a loss for us. Pak uses USD as international currency and now Pak will use chinese yuan .The whole point of this swap is china wants to make Yuan global currency and that’s why china refused to deal with Rupee . But Chinese show their greediness as it doesn’t give major market access to pak like EU or USA , thanks to trade deficit with china .Now question arises what china would do with this 1 billion rupee ?obviously pak would use this yuan to import Chinese goods .Again question arises whether china would do same kind of swap in future ?Better to avoid this swap and make a delicate line between east and west .

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  • Ahsan J
    Dec 24, 2011 - 9:14PM

    These swap agreements continue to baffle me….

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  • Dec 24, 2011 - 10:50PM

    I don’t see that much benefit of it if Pakistani importer has still to pay in Yuan. That must be another curious move by SBP, ingrained by vested interests of the people backing the deal .. ah! Allah knows the best what they do?

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  • amir jafri
    Dec 27, 2011 - 1:04AM

    VERY GOOD NEWS..The United Satans must be kicked hard..Must be defeated on ALL fronts..Pakistan must become DESI EASTERN & get rid of Westoxicity..english-medium types must sent back to their foster-abbaas.

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  • akbar ali
    Feb 8, 2012 - 9:57PM

    china is always come for pakistan rescue and this currency is little effort towards the revival of pakistan economy.

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