At the start of the New Year, Chinese President Xi Jinping stated that China will have a “say” on all major international issues and actively push its One Belt One Road initiative (OBOR). The recent steps of the People’s Bank of China (PBC) and State Bank of Pakistan (SBP) show that Jinping’s vision of a successful OBOR is on its way, and Pakistan is on board.
Despite reports of glitches and hurdles in CPEC and Pakistan not feeling compensated enough, PBC has announced a raft of new measures to push a greater cross-border role for the Renminbi (RMB), China’s official currency, also known as Yuan. Part of these steps includes the allowance of all cross-border businesses settled with foreign exchange to also be settled with RMB by enterprises. The reforms aim at making investments in RMB much easier, eliminating limitations on account opening and payment revolving around RMB, and simplifying procedures of issuing bonds through the Yuan. More importantly, to serve the Belt and Road Initiative (BRI), banks will be allowed to provide individuals with cross-border payment services under other current account items, to facilitate with social welfare and family remittance in individual accounts.
If pushed through, these reforms will make the flow of RMB substantially easier, and increase the demand for the currency. These measures come after Ahsan Iqbal announced in late December that the government was considering a Chinese proposal to use RMB instead of the US dollar for payments in bilateral trade between the two countries, which was further solidified in January when the SBP confirmed that all arrangements for using Chinese Yuan for bilateral trade and financing investment activity between Pakistan and China were in place.
The announcement of the SBP came after the United States’ verbal attack against Pakistan for not “doing enough” in Afghanistan, and Trump’s tweet, and later initiative, to cut billion dollar aid to Pakistan. It shows that Pakistan has other allies to fall back upon, and should serve as a lesson to the US that a policy of cooperation works better with Pakistan than of coercion and intimidation.
Pakistan’s adoption of the Yuan for bilateral trade is probable to serve as a push-factor for other countries, tired of dependence on the dollar, to take up Yuan, a steady, growing and strong currency, as a medium for bilateral trade as well, a move which can cost much loss to the dollar, proving predictions of a stronger China, and inward USA right.
