“With the implementation of new financial currency arrangement by converting Chinese currency “RMB” directly into Pakistan rupee without involving the US dollar, Chinese investors can save 0.5 million Pakistan rupee on every transaction of Rs. 10 million,” said Liao Longtai, General Manager (GM) of Hangeng Trade Company in Gwadar. Talking to Gwadar Pro, he said “the new mechanism has boosted our confidence and more investors will pour in to invest in Pakistan in general and Gwadar in particular”. 

“In the previous financial system, Chinese traders and investors had to first convert RMB into the US dollar and then into the Pakistani rupee. Owing to the volatile value of the US dollar, exchange rate damage had to be borne out by Chinese traders that used to keep them upset. The new RMB-Rupee direct conversion mechanism has finally ended the loss for Chinese investors,” he added.    In Pakistan, hundreds of Chinese companies are working in the sectors of energy, telecom, automobile, agriculture, medicine, transport, infrastructure, industry, and many more.

Hangeng Trade Company GM Liao Longtai is among thousands of Chinese officials who have termed the development a watershed moment that is going to catalyze Pakistan-China trade. The breakthrough has also quashed a sense of reluctance among potential Chinese enterprises interested to pump fresh investment into CPEC projects. In the past, one of their major concerns was financial damages due to the unpredictable exchange rate in Pakistan.

 According to the Memorandum of Cooperation between the People's Bank of China (PBOC) and the National Bank of Pakistan, PBOC has decided to authorize the Karachi Branch of the Industrial and Commercial Bank of China (ICBC) to act as the Pakistani RMB clearing bank, PBOC announced last week. It will undertake supervisory and regulatory responsibilities. Officials from ICBC along with senior officials from the Chinese Consulate Karachi and Bank of China visited Gwadar this week to review the progress on CPEC projects.

 Mr. Luo Jianxue, President of the Lahore Overseas Chinese Association said that direct exchange of Chinese and Pakistani currencies can reduce the links and save the cost of capital exchange and will no longer be affected by the change of the US dollar exchange rate. Chinese Consulate Lahore Commercial Counsellor Yan Yang said that on July 13, 2021, China and Pakistan renewed the bilateral currency swap agreement with a scale of 30 billion RMB (Rs. 730 billion). It augurs well that Pakistan has entered into the RMB settlement club as China's RMB settlements with Belt and Road countries stood at 5.42 trillion yuan (763.4 billion U.S. dollars) in 2021, up 19.6 percent year on year.

It accounted for 14.8 percent of China's total cross-border use of RMB in 2021, said a report released by the People's Bank of China. By the end of 2021, China had signed bilateral currency swap agreements with 22 countries along the Belt and Road and established RMB clearing arrangements in eight countries along the Belt and Road. The Pakistani government had been weighing up an option for CPEC investors, especially companies in the Gwadar Free Zone, to operate in RMB to save them from financial losses being incurred by the downward spiral of Pakistani currency against the US dollar. 

The matter rose to prominence when COPHCL Chairman Zhang Baozhong briefed Prime Minister Shahbaz Sharif during Federal Steering Committee on Gwadar initiatives a few months back about concerns that deter Chinese investment in Gwadar relating to currency devaluation. He requested that Chinese investors be allowed to maintain accounts in RMB in Gwadar Free Zone without getting their invested money converted into Rupees. Earlier, Prime Minister Shehbaz Sharif directed the State Bank of Pakistan (SBP) to convene meetings with the Industrial and Commercial Bank of China (ICBC) and Bank of China for the use of RMB/PKR for bilateral trade between China and Pakistan. 

Prime Minister Shehbaz gave the instructions to SBP during a meeting with the Chinese businessmen held on May 30 this year. For the promotion of trade in the Chinese currency, a pilot project encompassing the introduction of ‘RMB pricing’ will be introduced in the first phase. In the second phase, RMB settlement and financing policies will be focused on. The exchange rate for the currencies of both countries will be set in the China Foreign Exchange Trading System (CFETS) and in authorized banks declared as cross-border currency markets in China and Pakistan, according to the official details. 

Credit: Independent News Pakistan-INP