China proposes RMB circulation system

China has proposed to Pakistan to set up a renminbi (RMB) capital circulation system to promote trade and other transactions in the Chinese currency.

In this regard, it has been suggested that the State Bank of Pakistan (SBP) hold talks with the Bank of China. The government has asked the finance ministry and the central bank to review the proposal of the Chinese authorities and take practical steps.

It is expected that significant progress will be made soon and formal talks will get underway between the two countries on the issue.

A letter sent to Pakistan’s government by the Bank of China’s Karachi branch said that companies were generally not allowed to keep their own foreign currency and that foreign exchange, as well as foreign direct investment, was supposed to be converted into rupees within a period of three days.

According to the available documents, for the promotion of trade in the Chinese currency, a pilot project encompassing the introduction of RMB pricing should be introduced in the first phase.

In the second phase, the RMB settlement and financing policies should be focused on.

Read  Pakistan urged to set up RMB Capital Circulation System

The exchange rate for the currencies of both countries should be set in the China Foreign Exchange Trading System (CFETS) and in authorised banks declared as cross-border currency markets in China and Pakistan, according to the documents.

They urged the Pakistan government to allow free exchange of Pakistani and Chinese currencies along with the RMB capital circulation system to facilitate cross-border flows of the currencies under the current account.

The documents further stated that Pakistani and Chinese investors would be able to invest in both countries under the same exchange rate mechanism for the Pakistani rupee and Chinese yuan.

Published in The Express Tribune, May 27^th, 2022.

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