Against the background of the recent balance of payments crisis in Pakistan, the Pakistani government, enterprises and financial institutions have repeatedly called for expanding scale of direct settlement between RMB and PKR in the economic and trade cooperation between China and Pakistan. Sun Hui told China Economic Net (CEN) in an interview that BoC Pakistan Operations has proposed two policy suggestions to the Pakistani government, that is, RMB facilitation Policy and direct exchange between RMB and PKR, which are being investigated by the Pakistani government and the State Bank of Pakistan (SBP). Pakistan is one of the leading countries to use RMB for international trade settlement. SBP has put in place a regulatory framework and loan mechanism to ensure RMB to be freely used in the imports and exports and financing transactions, including the opening of L/Cs.
As financial market risk is increasing, RMB is becoming a more competitive hedging instrument. Wind Data shows that China’s cross-border RMB settlement is growing rapidly, with cross-border trade settlement business rising 33.84% year-on-year to RMB 806 billion in May. There are approximately 240 countries and regions engaging with RMB cross-border settlements and about 2,300 financial institutions using RMB for international settlements. More than 60 central banks and monetary authorities across the world have maintained RMB as part of their foreign exchange reserves. The use of RMB for cross-border settlement effectively avoids the risk of exchange rate fluctuations and increases the predictability of financial costs. East and Southeast Asian countries account for about 40% of Pakistan’s total imports and exports. In these regions, RMB is highly acceptable and widely used.
Pakistan is one of leading countries to use RMB for international trade settlement
Sun Hui said, when dealing with cross-border transactions with Asian countries in the region, denomination and settlement in RMB provide Pakistani enterprises with more options in various market environments. Besides, China has become Pakistan’s largest foreign direct investor. RMB settlement will help Pakistan attract more Chinese investment. Sun Hui added, however, that a considerable number of enterprises have little experience in using RMB for business transactions and investment. Pakistan has few financial assets and liabilities denominated in RMB. This calls on all stakeholders to further explore the aspects of policies and measures and to make more efforts to promote the use of RMB in practice.
Sun believes that the growth in use of RMB can be achieved by providing more RMB denominated financial products and solutions, stimulating and expanding the scope of RMB’s use by settling convenient bilateral trade and investment transactions and promoting cooperation and coordination among Chinese investors and local enterprises. In 2018, BoC Pakistan Operations launched local CNY settlement and clearing setup in Pakistan to provide RMB account opening for FIs, RMB clearing, RMB settlement, RMB liquidity support, RMB financing and other financial services. “We are ready to contribute more talent and strength to the direct settlement of RMB and PKR to strengthen economic and trade cooperation between China and Pakistan”, Sun Hui concluded.