karachi - A bilateral Currency Swap Arrangement (CSA) between the State Bank of Pakistan (SBP) and the People’s Bank of China (PBoC) amounting to Chinese Yuan (CNY) 10 billion and Rs 140 billion is being implemented from Tuesday after issuance of necessary instructions to banks and completion of operational formalities with PBoC.

The landmark bilateral CSA was signed between SBP and PBoC by SBP Governor, Yaseen Anwar and PBoC Deputy Governor, DU Jinfu in December 2011 in Islamabad.

Currency Swap Agreement between the two central banks will give a positive signal to the market on the availability of liquidity of other country’s currency in the onshore market. The arrangement will augment the pool of liquidity available to finance bilateral trade between the two countries, supplementing the already available sources of liquidity.

In order to ensure transparency in determination of market interest rates, the State Bank of Pakistan has decided to conduct competitive auctions of Chinese Yuan (CNY) Loan Facility. As part of the implementation guidelines, SBP has also announced an auction of Chinese Yuan Loan Facility. Based on the participation of banks in this auction, SBP will draw on the Swap Line and provide CNY to banks in Pakistan. Banks will on-lend this liquidity to importers/exporters involved in trade denominated in CNY. At maturity, the importer/exporter will repay the foreign currency to the lending bank, which in turn will repay to the respective central bank.

In order to provide sufficient lead time for banks to arrange on-lending of CNY to importers/exporters, the first auction will be conducted on 04 June, 2013 with settlement on 13 June. All banks are expected to educate their customers on the additional option of denominating their trade documents in CNY.  The objective of the Currency Swap Arrangement is to promote bilateral trade and investment between the two countries in the respective local currencies.