ISLAMABAD: Trade in Renminbi (RMB), Chinese Yuan, can reduce Pakistan’s dependence on the US dollar and strengthen the rupee, experts believe.
“Pakistan can save a lot of precious foreign exchange if it starts to trade with China in Yuan,” Assistant Director of State Bank of Pakistan Mutahir Shah told
WealthPK.
“The challenge of trading in Yuan is that Pakistan doesn’t have an upfront reserve of Yuan to initiate the trade. In order to buy Yuan from the international market, Pakistan will again have to use its dollar reserves. That way, it will again become difficult for Pakistan to sustain its faltering economy,’’ he said.
“Pakistan has to find a way around it. One way to achieve it is to take the Chinese authorities in confidence about a one-way trade in Yuan. Pakistan can start exporting all of its goods to China in Yuan while still doing the imports [from China] in dollars.”
“In this way, we will be able to slowly build up a reserve of Yuan while at the same we will relieve the Chinese of their burden to buy our currency for trade with us i.e., rupee, which is a very weak currency. As soon as we have enough Yuan reserves, we will be able to trade with other countries in Yuan as well, especially the BRICS countries.”
“This will open up new avenues of trade for us in currencies which are not as dominating as the dollar. Yuan will save us a lot of trouble, as we will be able to buy crude oil from Russia, which is one of our most pressing needs and puts us in a lot of trouble for want of dollars.”
Mutahir further said currently Pakistan had few currency swap agreements with China but these were usually signed in times of financial stress and liquidity crunch.
“These agreements are no permanent solution to the problem of international trade. The international trade is dominated through specialization, identification of areas of comparative advantage, and having international monetary alliances where stress levels are as minimal as possible.”
He further said, “We need find an international trading regime where the currencies are backed by gold and not simply by the fiat value of the dominating coin. Yuan is one such currency and Pakistan need discuss this strategy with the Chinese counterparts.”
Talking to WealthPK, eminent macroeconomist and Deputy Executive Director and founding head of the Policy Solutions Lab at the Sustainable Development Policy Institute (SDPI) Sajid Amin Javed said, “In order to facilitate the international trade transactions, there is a need for a medium of exchange that allows the buyers and sellers from different countries to transact with each other. Historically, the US dollar has been the dominant currency used in international trade due to its stability, liquidity, and wide acceptance.”
He noted that the prospects for yuan trade in Pakistan were quite promising. RMB clearing arrangement in Pakistan will reduce the risks associated with fluctuations in the value of US dollar, which can have a significant impact on Pakistan’s economy.
“It is important to note that switching to the use of RMB in international trade transactions will require significant coordination and cooperation between Pakistan and China, as well as adjustments in the banking regulations and financial systems. The benefits of this policy will be evident in the long run,’’ Sajid said.
Talking to WealthPK, Syed Irfan Ali, Managing Director of Deposit Protection Corporation of SBP, said, “With the evolution of technologies, financial services are also changing their shape. The State Bank of Pakistan (SBP) is helping Pakistan’s financial system to adopt modern technologies.”
“The central bank’s Initiative of issuing licenses and regulatory framework to the Electronic Money Institutions (EMIs) is one more step towards making Pakistan a cashless society and digitalizing the economy.”
Talking about the role of EMIs in digitalizing the economy, the SBP official said they had no physical branch and did not deal with cash. These EMIs will help Pakistan move to a cashless society, he added.
“CBDC (central bank digital currency) will help address the issue of financial exclusion, particularly in the rural areas where access to traditional banking services is limited, and also provide access to financial services to a larger population, which can lead to a reduction in poverty and increase in economic activity. Technology, innovation and adoption are key to enhancing financial inclusion in the country.”
According to Irfan Ali, the State Bank will continue to collaborate with all parties involved to further the adoption of innovative payment technologies and their implementation, in a way that is both effective and affordable.
He further said, “Despite significant progress, large parts of the world’s population remain financially underserved. Increasing financial inclusion has many challenges, including access to digital technology. CBDC can potentially facilitate financial inclusion by increasing access to digital payments, thus serving as a gateway to wider access to financial services.” –INP
