KARACHI: The State Bank on Wednesday allowed the Bank of China (BoC) Pakistan to establish a local Chinese yuan (CNY) settlement and clearing setup to facilitate the bilateral trade.

Since China has emerged as the largest trade partner of the country, the government is willing to facilitate traders to carry out their transactions in yuan.

The SBP said the decision has been taken to further strengthen the trade channels and remittance flows in the Chinese currency. “Bank of China can open CNY accounts of the banks operating in Pakistan to facilitate settlement of CNY based transactions such as remittance to and from China,” said the SBP.

The BoC can also provide yuan liquidity to the interbank market for the settlement of CNY-based transactions, it added.

The Industrial and Commercial Bank of China Limited (ICBC) Pakistan has already been allowed by the SBP to offer similar services since 2015. Allowing BoC the same facility could increase the scope of using CNY for trade and other transactions settlement.

“State Bank has continuously been taking policy measures to ensure that imports, exports and financing transactions with China can be denominated in Chinese yuan,” said the SBP.

The SBP signed a Currency Swap Agreement with the People’s Bank of China with the objective of promoting bilateral trade and financing direct investment between the two countries in the respective local currencies.

“These steps are part of efforts by SBP to encourage trade with China in CNY and eventually in the respective local currencies,” said the SBP.

This settlement and clearing mechanism is expected to reduce costs and increase efficiency for the local banking system in transacting in CNY, enhance market liquidity and facilitate settlement of growing trade and investment transactions between China and Pakistan in yaun.

Published in Dawn, April 12th, 2018