Bank of China to establish yuan settlement system

Move will strengthen remittance flows in Chinese currency

KARACHI: The State Bank of Pakistan (SBP) has allowed the Bank of China Pakistan to establish a Chinese yuan settlement and clearing setup in Pakistan in an effort to further strengthen trade channels and remittance flows in the Chinese currency.

In a statement, the SBP emphasised that it had continuously been taking policy measures to ensure imports, exports and transaction financing with China were denominated in yuan.

The central bank has already signed a currency swap agreement with the People’s Bank of China with the objective of promoting bilateral trade and financing direct investment between the two countries in their respective local currencies.

Now, according to the statement, the Bank of China can open yuan accounts of banks operating in Pakistan to facilitate settlement of yuan-based transactions such as remittance to/from China.

The Bank of China can also provide yuan liquidity to the interbank ket for the settlement of transactions.

The SBP has already allowed the Industrial and Commercial Bank of China (ICBC) Pakistan to offer similar services since 2015.

“These steps are part of efforts to encourage trade with China in yuan and eventually in the respective local currencies,” the SBP said. “This settlement and clearing mechanism is expected to reduce costs and increase efficiency for the local banking system in transacting in Chinese yuan, enhance market liquidity and facilitate settlement of growing trade and investment transactions between China and Pakistan in yuan.”

Keeping in view the recent local and global economic developments, the SBP said it expected the new initiative to yield long-term benefits for China-Pakistan relationship in general and Pakistan’s economy and banking system in particular.

Published in The Express Tribune, April 12^th, 2018.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.