Currency swap agreements will less help to release pressure on Pak Rupee

Recently made Currency Swap Arrangements (CSA) with China and Turkey will certainly help improve bilateral trade and foreign investment activities in the countries but will not help to ease out the pressure on Pak Rupee. These agreements will not cause a
dent in the demand for dollars and that is the reason why the country’s currency will keep under the similar pressure as it is these days.

The State Bank Pakistan signed CSA with the People’s Bank of China last Friday, which involves 10 billion Chinese yuan and Rs. 140 billion for promoting bilateral trade between the two nations. Financial cooperation will boost a great deal with this agreement,
so will the economic ties between the two countries.

On November 1, Pakistan and Turkey also signed a currency swap agreement. The State Bank said the bilateral CSA has been concluded in Pakistan Rupee/Turkish Lira with size amounting to $1 billion in equivalent local currencies. Tenor of the both the agreements
will be for three years.

These CSA agreements will provide an extra leverage to the importers and exporters of the countries involved and enhance the foreign investment portfolio. However, since the currency swapping is relatively new phenomenon for the businessmen in the country,
its implementation is very slow at present but betterment is anticipated in the near future.

Traders said both exporters and importers would prefer to keep dollar as their liquidity instead of yuan which is strong currency but not tradable in the international market like dollar, pound, euro and Japanese yen. However, they said opening letter of
credit in yuan could provide additional line for payments or an investor could benefit from this agreement, which has over $3.1 billion liquidity facility.

“The currency swap agreement with China may improve trade between the two countries but there is no chance for any ease of pressure on dollar demand, at least in near future,” said Atif Ahmed, a currency dealer in the inter-bank market.

He said dollar has once again reached close to Rs90 on Tuesday and pressure on Pak Rupee keeps building. 

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Posted by Farhan Hameed on Dec 29 2011. Filed under Business, Pakistan. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry