The MOU was signed by Governor SBP Jameel Ahmad and Governor PBoC [Peoples Bank of China] Yi Gang.

“The establishment of the RMB clearing arrangement in Pakistan will further boost usage of RMB for cross-border transactions among Chinese and Pakistani enterprises and financial institutions,” the State Bank of Pakistan said.

It would also promote bilateral trade and investment between the two countries, it added.

The MoU was signed during a two-day visit by Prime Minister Shehbaz Sharif to Beijing.

According to analysts, the mechanism will lessen Pakistan’s dependency on US dollars for bilateral transactions and ease the pressure on the country’s external account.

“I think it’s a great move and beneficial for trade and investment. It will also reduce reliance on USD for bilateral transactions,” said Mustafa Mustansir, head of research at Taurus Securities.

The yuan clearing arrangement is nothing new to Pakistan as the country has had a currency swap agreement with China since 2011. But it’s not on large scale for trade purposes.

Fahad Rauf, head of research at Ismail Iqbal Securities, sees the agreement as a positive development, saying China is a major trading partner for Pakistan. The collaboration would further improve bilateral relations, he added.

“Once fully implemented, the reliance on dollars will reduce, which will lower the burden on our external account,” Rauf said.

He was of the view that it would also allow Chinese investors to invest more freely in Pakistan’s markets. On the other hand, Pakistan would be able to raise debt from Chinese markets, he stated.

China’s President Xi Jinping said China will continue to assist Pakistan in restoring stability to its finances, according to media reports. As part of the $65 billion China-Pakistan Economic Corridor, China has been involved in significant mining and infrastructural projects in Pakistan, notably the deep-water Gwadar port.