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The accord was signed in Istanbul in the presence of President Asif Ali Zardari and Turkish President Abdullah Gul.—AFP photo

KARACHI: Pakistan and Turkish central banks on Tuesday signed a bilateral Currency Swap Arrangement (CSA) on Tuesday at a ceremony held in Istanbul in the presence of President Asif Ali Zardari and Turkish President Abdullah Gul.

The agreement was singed by Yaseen Anwar, Governor, State Bank of Pakistan and Erdem Baþçý, Governor of CBRT.

According to the State Bank of Pakistan, the agreement has been concluded in Pakistan Rupee / Turkish Lira with size amounting to $1 billion in equivalent local currencies, and the tenor of the agreement would be for three years.

The trend of currency swap is rising among developing nations. South Korea recently signed an agreement with the Japan and China to enhance size of the agreement for currency swap.

Korea and China on Oct 26 agreed to double their bilateral currency swap to 64 trillion won ($56.65 billion) in a deal meant to mitigate external risks from the Europe and the US.

Korean companies and state-run banks would be able to issue dollar bonds at lower costs as currency swaps would give them a strong bargaining power.

Korea also signed an agreement with Japan on Oct 19 to expand currency swap from $13 billion to $70 billion.

Malaysia also signed an agreement with China in February 2009 for currency swap arrangement that would provide RM40 billion or 80 billion renminbi and has an effective period of three years.

The State Bank said the core objective of the currency swap arrangement with Turkey was to finance bilateral trade in respective local currencies of the two countries, and termed it a landmark transaction executed between the two central banks; and was the first time either country had executed such an arrangement.

The agreement gives hope that bilateral trade would grow between Pakistan and Turkey as a result of this agreement, further augmenting the economic ties of the two countries.

“This agreement will make a significant contribution to further strengthen closer and special relationships between the two countries,” said a release issued by the State Bank.

The Currency Swap Agreement between the two central banks would give positive signal to the market on availability of liquidity of the other country's currency on the onshore market.

As a result, it will promote bilateral trade denominated in Turkish Lira and rupee.