Chinese yuan becomes increasingly popular in Pakistan amid enhanced bilateral cooperation

Islamabad: The Chinese yuan is becoming increasingly popular in Pakistan as the two friendly countries engage in cooperation in multiple sectors.

State Bank of Pakistan (SBP) has been at the forefront of facilitating this transition, appointing three key players – the Industrial and Commercial Bank of China, the Bank of China, and Standard Chartered Bank – to establish localized RMB clearing and settlement setups.

This concerted effort has borne fruit, with the volume of bilateral trade between China and Pakistan conducted in the yuan witnessing a meteoric rise to over 14% in 2023, a substantial leap from a mere 2% in 2018.

As Pakistan charts its course towards a more diversified and resilient economic landscape, its embrace of the Chinese yuan emerges as a testament to a burgeoning partnership, poised to unlock a realm of trade opportunities for both nations.

This strategy not only mirrors the shifting economic tides within Pakistan but also presents a tangible opportunity to safeguard its precious foreign exchange reserves.

Hassan Dawood Butt, former Chief Executive Officer of Khyber Pakhtunkhwa Board of Investment and Trade, as well as Project Director of China-Pakistan Economic Corridor (CPEC) at Ministry of Planning and Development, highlighted China’s crucial role as one of Pakistan’s foremost trading partners.

He emphasized the potential dividends of embracing the yuan, advocating for a move beyond the prevalent reliance on the US dollar in Pakistan’s currency portfolio.

Butt elaborated on the considerable advantages for exporters eyeing the Chinese market, pinpointing the longstanding challenge of intricate documentation and linguistic barriers.

He noted that the establishment of localized RMB clearing and settlement infrastructures between the two nations would provide a crucial lifeline for Pakistani exporters, easing the bureaucratic hurdles they often face.

Zeeshan Aslam Malik, Head of China Coverage at Habib Bank Limited (HBL), echoed these sentiments, heralding the rupee-yuan alliance as a catalyst for bolstering cross-border corporate collaboration.

He emphasized China’s expansive market as an attractive prospect for Pakistani investors, offering a gateway to a vast clientele base.

With the PKR (Pakistani rupee)-RMB alliance cemented, Pakistani investors are poised to navigate the Chinese business terrain with greater agility, capitalizing on the stability and accessibility afforded by the yuan.

Malik reminisced about HBL’s pioneering feat in early 2020, becoming the inaugural Pakistani bank to commence operations within China—a watershed moment in the nation’s banking landscape.

He elaborated on the anticipated benefits of the settlement and clearing mechanisms, foreseeing a reduction in domestic banking costs associated with yuan transactions.

This move not only promises to enhance market liquidity but also augurs well for the expansion of trade and investment avenues denominated in the yuan.

Sajid Amin Jawed, the Deputy Executive Director of the Sustainable Development Policy Institute, spoke about the key role of a medium of exchange in facilitating international trade transactions.

He emphasized the need for robust coordination and cooperation between Pakistan and China, alongside requisite adjustments in banking regulations and financial frameworks.