The central bank’s governor on Friday asked neighbouring Pakistan and China to trade in their own currencies to take more benefits from the proposed China-Pakistan economic corridor project.“Pakistan and China should trade in their own currencies to take more benefits from the CPEC,” said Ashraf Mehmood Wathra, Governor State Bank of Pakistan (SBP) during an interaction with media after flag-hoisting ceremony at the main SBP Building. Wathra said Pakistani banks have made arrangements for the businessmen to open letters of credit in China. To a question about devaluation of Chinese currency, he said Chinese economy has an ideal rate of growth and can easily absorb the devaluation. Launching the five-year financial strategy, ‘SBP Vision 2020’, the governor said the central bank makes five-year financial strategy after every five years. He said the SBP has included certain safeguards into the plan so it might not disturb with any change of SBP leadership over the period. The suggestion is gaining ground as the strains on the dollar’s dominance as a global currency mount. Pakistan is not a large enough trade partner with China to urge the latter into giving the proposal due consideration, but perhaps some of that famous goodwill that Pakistan enjoys in Beijing can be leveraged to bring some focus on the proposal. China is Pakistan’s second largest trade partner after the US, and the deficit in our total trade is less than half of what it is with the US. But this deficit means that a swap arrangement between the rupee and the yuan will be necessary to make the proposal work. It is also likely to encourage yet more imports from China, something that could have adverse consequences for local industry. Besides, there are some challenges to making the proposal a reality. For one, China is already struggling with its external sector situation as its growth falters and is therefore unlikely to view any concessions to Pakistan favourably. Second, there is no convertibility between the rupee and the yuan, which would mean the dollar will retain its importance as the currency through which conversions are done. In order to realise the proposal, not only in trade but also in settlements of the CPEC investments where some Chinese sponsors are asking for dollar denominated returns, it would be helpful for Pakistan to have a stronger negotiating position vis-a-vis China, something that can be attained if the east to west axis can also be included in the corridor. In any case, it is a good sign that the proposal is being floated from a platform as high as that of the SBP governor, and it would be encouraging to see it find some traction in Islamabad as well.
pk.shafaqna.com
