Why Should Pakistan and China Pay in Local Currencies for Trade?
Ibn-e-Ameer
United States (US) has been using dollar currency as a tool to maintain its dominance in the world. It controls the entire baning systems of all countries. The economies of the world are also dependent on the U.S dollar.
Even, the dollar currency is a tool to use against those states which come under the radar of US sanctions.
Those countries are unable to use banking channels to make transactions for trade.
Different countries like Iran, North Korea, and Venezuela are facing the situation due to US sanctions.
Keeping in view this situation, different countries are working on alternatives to end the hegemony of the dollar.
They are entering into a currency swap arrangement.
Pakistan and China had also signed a currency swap agreement in 2011.
The primary objective was to reduce dependence on dollars and ease the burden on foreign exchange reserves.
The agreement allowed traders of two countries to pay in local currency.
State Bank of Pakistan extended the currency swap agreement under CPEC in 2018 to make payments for bilateral trade.
However, the two countries had not implemented the agreement in full spirit.
After its implementation, Pakistan will be able to pay for imports in yuan instead of dollars.
Experts say that Pakistan and China should fully implement it as the latter is Pakistan’s key trading partner.
It contributes 18-20 percent to total trade volume. Total trade volume between two countries amounts to around $18billion per annum.
In recent years, Pakistani’s currency against the dollar had depreciated significantly.
In this situation, the local currency has become volatile.
Experts say that the local currencies volatility will end after two countries implement a currency swap agreement.
There had been hoarding and smuggling of dollars that impacted the local currency.
A currency swap deal will result in a drop in dollar requirements in Pakistan.
At least, Pakistan and China will be utilizing local currencies in 18 percent of trade.
China is also struggling to promote its currency Yaun and Pakistan could benefit from it.
In this situation, the Pakistani currency may depreciate against Yuan.
But it will not push to such a level, the dollar has done.
Pakistan can also make such arrangements with Iran which can meet the entire energy needs of Pakistan.
In exchange, it can offer its market to Pakistan for food items and other commodities.
Currency swap arrangements seem to be the best way for Pakistan and China as well to boost bilateral trade and ease pressure on foreign exchange.