Bank of China has been allowed by the State Bank of Pakistan to establish Chinese yuan settlement and clearing setup in Pakistan for payments in Chinese currency and strengthening trade relations between both countries.

The SBP underscored in a statement that the policy measures had been continuously taken in order to insure imports, exports and transaction financing with China were denominated in yuan.

Previously, the SBP had signed an agreement related to currency swap with the People’s Bank of China.

The objective of signing that agreement was mainly for the purpose to promote bilateral trade and financing direct investment between the two countries in their respective local currencies.

Now, according to the statement, the Bank of China can open yuan accounts of banks operating in Pakistan to facilitate settlement of yuan-based transactions such as remittance to/from China.

The Bank of China can also provide yuan liquidity to the interbank ket for the settlement of transactions.

Earlier, in 2015, the SBP has already allowed the Industrial and Commercial Bank of China (ICBC) to offer same services in Pakistan.

“These steps are part of efforts to encourage trade with China in yuan and eventually in the respective local currencies. This settlement and clearing mechanism is expected to reduce costs and increase efficiency for the local banking system in transacting in Chinese yuan, enhance market liquidity and facilitate settlement of growing trade and investment transactions between China and Pakistan in yuan,” stated by the State Bank of Pakistan.

SBP hoped the step will benefit long-term benefits for China-Pakistan relationship in general and Pakistan’s economy and banking system in particular.