KARACHI, May 7: The State Bank has announced that a currency swap arrangement (CSA) with China has begun from Tuesday and the first auction will be conducted on June 4.
The SBP said that in order to provide sufficient lead time for banks to arrange on-lending of Chinese Yuan (CNY) to importers and exporters, the first auction will be conducted on June 4, 2013 with settlement on 13th June 2013.
The bilateral CSA between the State Bank of Pakistan (SBP) and the People’s Bank of China (PBoC) amounting to CNY 10 billion and Rs140bn is being implemented from Tuesday after issuance of necessary instructions to banks and completion of operational formalities with PBoC.
The bilateral CSA was signed between SBP and PBoC by SBP Governor Yaseen Anwar and PBoC Deputy Governor DU Jinfu in December 2011 in Islamabad. The objective of the CSA is to promote bilateral trade and investment between the two countries in the respective local currencies. Since the CSA is a bi-lateral financial transaction, all terms and conditions apply equally to both countries and the pricing is based on standard market benchmarks which are widely acceptable in the respective domestic markets.
SBP implementation guidelines The CSA between the two Central Banks will give a positive signal to the market on the availability of liquidity of other country’s currency in the onshore market.
The arrangement will augment the pool of liquidity available to finance bilateral trade between the two countries, supplementing the already available sources of liquidity. In order to ensure transparency in determination of market interest rates, the State Bank of Pakistan has decided to conduct competitive auctions of CNY loan facility.
As part of the implementation guidelines, SBP has also announced an auction of Yuan loan facility. Based on the participation of banks in this auction, SBP will draw on the Swap Line and provide CNY to banks in Pakistan.
Banks will on-lend this liquidity to importers or exporters involved in trade denominated in CNY. At maturity, the importer or exporter will repay the foreign currency to the lending bank, which in turn will repay to the respective central bank. Detailed guidelines can be accessed from the SBP
website. https://www.sbp.org.pk/dmmd/2013/C9.htm
The SBP said that all banks are expected to educate their customers on the additional option of denominating their trade documents in CNY. SBP would encourage banks to hold sessions with local trade bodies.
All importers and exporters were also requested to contact their respective banks for more details on how they can borrow CNY liquidity to finance bilateral trade.