How will the currency swap between Pakistan and China work
December 23, 2017
ISLAMABAD: Interior Minister Ahsan Iqbal on Saturday announced that Pakistan and China will use their respective currencies in their bilateral trade.
The currency swap agreement was signed earlier between Islamabad and Beijing in 2011, allowing both countries to make transactions in either Pakistani rupee or Chinese Yuan.
According to the agreement, the State Bank of Pakistan (SBP) can take a loan of as much as 10 billion Yuan from the Peoples Bank of China and can return the loan by giving Rs140 billion.
As a result of the agreement, Pakistani foreign reserves would receive Chinese Yuan which would be provided to the banks.
SBP is mandated to auction the loan facility in Yuan. The banks will then be allowed to form swap lines with SBP and provide loan facility to its customers allowing them to make payments through the currency.
The agreement would have been in place for six years on December 23.
Financial circles have expressed their surprise on the interior minister's announcement, saying that when an agreement already exists, how could it be started from the scratch. The facility has not yet been properly utilised.
Experts have reiterated that if the transactions are made using the respective currencies, then eventually Pakistan’s economy will be less dependent on US dollar.
