The currency swap arrangement between State Bank of Pakistan (SBP) and People’s Bank of China (PBOC) has been extended for a period of 3 years in respective local currencies.
Accordingly, both the central banks have agreed to increase the Currency Swap Agreement (CSA) amount from CNY 10 billion to CNY 20 billion and from Rs. 165 billion to Rs. 351 billion.
The increase in the CSA amount reinforces the commitment of the two central banks to promote the usage of local currencies in bilateral trade and investment and strengthening financial cooperation between the two countries.
This agreement will also help ease off pressure on Pakistan for its high imports bills mainly on the imports of machinery and goods from China as part of China Pakistan Economic Corridor.
Pakistan’s imports from China constitute close to one-fourth of its total import bill, amounting to $12 billion a year.
Pakistan & China Entered Currency Swap Agreement in 2011
Pakistan and China signed the first currency swap agreement in 2011. This is the second CAS that State Bank of Pakistan has signed, the first one being with the Central Bank of Turkey on November 1, 2011.
Accordingly, SBP can take a loan of as much as 10 billion Yuan from the Peoples Bank of China and can return the loan by giving Rs 140 billion. As a result of the agreement, Pakistani foreign reserves received Chinese Yuan which were provided to the commercial banks.
The objective of the swap is to promote bilateral trade and finance direct investment between the two countries in the respective local currencies of the two countries and any other ‘purpose’ as mutually agreed between the two central banks.