By Atif Khan
Islamabad: In a major development, Pakistan and China signed an agreement on Wednesday to trade in Chinese currency instead of dollars.
According to a state bank press release, Governor State Bank of Pakistan Jameel Ahmad and Governor People's Bank of China (PBOC), signed an MOU on establishing RMB (Chinese currency) clearing arrangements in Pakistan.
According to officials, the establishment of the RMB clearing arrangement in Pakistan will further boost the usage of RMB for cross-border transactions among Chinese and Pakistani enterprises and financial institutions. This will also promote bilateral trade and investment between the two countries.
The State Bank is however, tight-lipped about the details of the agreement. "We cannot tell you more about it at the moment," said an official, adding, the details will be shared later.
Read More: SBP signs MOU with PBoC on establishing RMB clearing arrangements
Pakistan has been grappling with fast depleting foreign currency reserves, and widening fiscal and current account deficits, for a few years. The rupee's devaluation since April this year is a new addition to a long list of the country's economic challenges.
With a fragile coalition government, Pakistan is struggling to avoid bankruptcy. Moody, recently termed Pakistan's ability to afford its own debt as "one of the weakest among the sovereigns.". Barclays Bank estimates Pakistan faces a funding gap of at least $6 billion in fiscal year 2023.
Last month, after coming into power, Ishaq Dar vowed to bring the dollar down to Rs 200 in a month, but failed so far. On Wednesday, US currency was traded at 221.43 in interbank market. It is too early to say whether it is a new trick of Finance Minister Ishaq Dar to control the devaluation of the rupee against the dollar or to pressurize the West to get some financial relief and debt restructuring.
Pak-China trade in local currency may seem very beneficial for Pakistan, but it may irk western nations, including the United States. In late 2019, Alice Wells, then acting assistant secretary of state for South and Central Asian affairs, raised questions about the transparency and fairness of CPEC projects as well as related Chinese loans Islamabad has received.
India and Russia have already been working on trading in rubles instead of dollars. Under the arrangement, Indian importers would deposit money in Russian banks.
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