Pakistan’s government signed an agreement with China government to use the Chinese “Yuan” for Transactions.
The central bank of China said in a statement that the central banks of Pakistan and China have signed a memorandum of cooperation regarding transactions in the Chinese currency Yuan in Pakistan.
According to a report, the development could pave the way for an alternative payment option for Pakistan that would increase the use of Yuan for cross-border transactions between Chinese and Pakistani businesses and financial institutions.
This development in the financial sector is seen as something that could also help Pakistan buy discounted Russian oil as the Chinese currency is acceptable to Russia, keeping in mind that Pakistan is currently paying for oil in US dollars
According to analysts, the mechanism will lessen Pakistan’s dependency on US dollars for bilateral transactions and ease the pressure on the country’s external account, The News reported.
“I think it’s a great move and beneficial for trade and investment. It will also reduce reliance on the US dollar for bilateral transactions,” said Mustafa Mustansir, head of research at Taurus Securities.
The yuan clearing arrangement is nothing new to Pakistan as the country has had a currency swap agreement with China since 2011.
But it’s not on large scale for trade purposes.
China’s President Xi Jinping said his country will continue to assist Pakistan in restoring stability to its finances, according to media reports.
As part of the $65 billion China-Pakistan Economic Corridor, Beijing has been involved in significant mining and infrastructural projects in Pakistan, notably the deep-water Gwadar port.