Governor SBP claims CSA will prop up bilateral trade

Governor of the State Bank of Pakistan, Yaseen Anwar, has claimed that the recently made Currency Swap Arrangements (CSA) will promote the bilateral trade and foreign investment portfolio between the involved countries. Pakistan
has made CSA with China last week and with Turkey in November to encourage the bilateral trade in the region.

The CSA made with China is deemed to be a landmark and is believed to enhance the finance direct investments between the two countries by facilitating the importers and exporters. The State Bank of Pakistan signed the agreement
with People’s Bank of China (PBC) to swap the local currencies and it will remain in effect for the next three years.

Yaseen Anwar told that Pakistan can purchase Chinese Yuan (CNY) from PBC against the Pak Rupee and repurchase its local currency with the same CNY on a predetermined maturity date and exchange rate. Similarly, PBC can also purchase
Pak Rupee against its local currency. Like any swap, the pricing is linked to interest rates’ differentials between the two currencies, he added. However, drawing under the swap line by either of the central banks will be contingent on 1) bi-lateral trade
being denominated in local currencies, or 2) financing of direct investment between the two countries.

The Governor of SBP also mentioned that such agreements not only enhance the bilateral trade between the two countries but also improve the foreign investment portfolio to increase the size of imports and exports. However, CSA
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. Moreover, 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 will 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.

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Posted by Farhan Hameed on Dec 30 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