Pakistan, China to use Chinese currency for trade

The State Bank of Pakistan has formally allowed the use of Chinese currency Yuan for the bilateral trade after both countries agreed the move could take away the burden of relying on U.S. dollars, according to a Pakistani state minister on Thursday.

The decision came soon after U.S. President Donald Trump threatened Pakistan to stop all aid to Islamabad.

"State Bank of Pakistan has issued the circular and formally allowed both public and private enterprises [both Pakistanis and Chinese] to use Chinese currency for bilateral trade and investment activities," State Minister for Finance Rana Afzal told Anadolu Agency.

Currently, Pakistan-China annual bilateral trade stands at around $15 billion, which would increase further after the launch of the China-Pakistan Economic Corridor (CPEC), the minister added.

The adoption of the Chinese currency would mean that both countries would be able to replace the U.S. dollar for their transactions and investments in CPEC projects as well.

The $54-billion CPEC project aims to connect China's strategically-important northwestern Xinxiang province to Baluchistan’s Gwadar port through a network of roads, railways, and pipelines to transport cargo, oil, and gas.

The economic corridor will not only provide China cheaper access to Africa and the Middle East but will also earn Pakistan billions of dollars for providing transit facilities to the world’s second-largest economy.

As per current foreign exchange regulations, the Chinese Yuan (CNY) is an approved foreign currency for denominating foreign currency transactions in Pakistan, like other international currencies such as the U.S. dollar and euro.

The State Bank of Pakistan has already put in place the required regulatory framework which facilitates the use of CNY in trade and investment transactions such as the opening of L/Cs and availing financing facilities in CNY, the bank in a statement on Tuesday.

Analysts consider the move as yet another indicator of the growing ties between the neighboring countries.

"It would help both side businessmen to trade in local currency and now they don't need to buy U.S. dollar from market to trade" Pakistan-based economist Gulab Sher said.

Pakistan’s volume of bilateral trade expanded and reached around $15 billion in financial year 2017, up from $ 2.2 billion in 2005.