Pakistan-China to set up RMB Capital Circulation System

China has proposed to Pakistan to set up RMB Capital Circulation System to promote trade and transactions in the Chinese currency.

In this regard, it was suggested that the State Bank of Pakistan (SBP) hold talks with the Bank of China. The government asked the finance ministry and the central bank to review the proposal of the Chinese authorities and take practical steps. It is expected that significant progress will be made soon and formal talks will be started between the two countries on this issue.

A letter sent to the government by the Bank of China’s Karachi branch said that the companies were generally not allowed to keep their own foreign currency and that foreign exchange, as well as foreign direct investment, was supposed to be converted into the rupee within a period of three days.

The documents available stated that for the promotion of the trade in the Chinese currency, a pilot project encompassing the introduction of the ‘RMB pricing’ should be introduced in the first phase. In the second phase, the RMB settlement and financing policies should be focused on.

The exchange rate between the currencies of both countries should be set in the China Foreign Exchange Trading System (CFETS) and in authorized banks declared as cross-border currency markets in China and Pakistan, according to the documents.

It urged the Pakistani government to allow free exchange between Pakistani and the Chinese currencies along with the RMB Capital Circulation System to facilitate the cross-border flows of the currencies under the current account.

The document further stated that Pakistani and Chinese investors will be able to invest in both countries under the same mechanism of the exchange rate regarding the Pakistani Rupee and Chinese Yuan.