CHINA-PAKISTAN: ECONOMY-USE OF YUAN FOR IMPORTS

The China Reform Monitor" on January 8, 2018 reported that Pakistan will now pay for imports from China in yuan rather than in U.S. dollars. Additionally, Pakistani and Chinese banks can open import Letters of Credit in each other's currencies, and Chinese companies investing in China-Pakistan Economic Corridor (CPEC) projects can use yuan in Pakistan and remit their profits back to China in yuan instead of dollars. The State Bank of Pakistan is in charge of ensuring that imports, exports and financing transactions are properly denominated in the Chinese currency.  The Pakistan Observer claimed "The trade in domestic currencies will yield long term benefits for both countries and provide a good financial environment for bilateral economic, trade and investment cooperation, and facilitate in [the] financing of key infrastructure projects under [the] CPEC project.Building an alternate system independent of [the] dollar will indeed truly make this world multipolar, free from the pre-eminence of any one particular country." The decision comes after the U.S. halted economic aid to Pakistan and amid the rupee's depreciation, which puts pressure on Islamabad's dollar-denominated foreign exchange reserves.

(Comment: Last summer People's Bank of China (PBOC) deputy head Yin Yong revealed that “There are more than 50 Belt and Road economies where the proportion of renminbi usage in cross-border transactions is lower than 5 percent” (China Daily, June 7, 2017). Interestingly, the announcement comes at a time when Pakistan’s shift to use more yuan is a progress, but Pakistan is in the middle of a balance of payment crisis right now, with the Pakistani rupee in a free fall recently.) 







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