In order to promote bilateral trade state bank of Pakistan (SBP) has signed an agreement with People’s Bank of China (BOC). This currency swap agreement will facilitate direct investment between two countries in respective local currencies.
Policies have been adopted by SBP to denominate transactions pertaining to imports, exports and financing in Chinese Yuan (CNY).
Industrial and commercial bank of china limited (ICBC) has already been allowed currency swap by SBP since 2015 and it is for the second time local currency cross-border trade has been granted.
BOC will open Yuan accounts of banks operating in Pakistan, in order to facilitate the remittances to and from China and it will provide Yuan liquidity to interbank markets for settlement of Yuan based transactions.
The clearing mechanism like this will reduce costs as well as increase efficiency for banking system for transactions involving Yuan.