The Industrial and Commercial Bank of China (ICBC) has inaugurated a renminbi (RMB) clearing bank in Pakistan. This bank will facilitate cross-border transactions and financial activities for Pakistani and Chinese businesses and financial institutions.
The official opening ceremony on Friday, October 27, in Islamabad saw the attendance of important officials, experts and businesspeople from Pakistan and China. The ICBC's Karachi branch was chosen as Pakistan's RMB clearing bank by the People's Bank of China.
This new facility will enable ICBC to provide services for clearing and settling RMB transactions and help manage RMB activities, such as buying, selling, borrowing or lending, for participating banks in Pakistan.
Shamshad Akhtar, the caretaker Minister for Finance, Revenue and Economic Affairs, expressed her optimism at the ceremony about the newfound opportunities this initiative would bring.
She emphasized that establishing RMB clearing operations would connect Pakistani offshore and Chinese onshore RMB markets, making cross-border trade and investment more accessible.
Akhtar affirmed that these services mark the next stage in the maturation of Pakistan's RMB clearing system, with China putting in additional resources to help develop it further.
"The development of the RMB in Pakistan is not only meaningful for China but will also provide more business opportunities for Pakistan and deepen our commercial interactions with other countries in the system," she said.
State Bank of Pakistan (SBP) governor Jameel Ahmad pointed out that the establishment of a local RMB clearing system promises long-term dividends for the China-Pakistan relationship. It is also expected to fortify Pakistan's economy and banking sector.
He also mentioned the advantages of the local RMB clearing system and trading in RMB, including faster turnaround times, reduced costs for the local banking system, improved pricing of bilateral trade transactions and opening new markets for Pakistani businesses.
RMB's rising influence in Pakistan
In Pakistan, the RMB is now at par with other major international currencies, such as the U.S. dollar, euro and Japanese yen.
The SPB governor highlighted that the share of the Chinese currency in the International Monetary Fund's (IMF) Special Drawing Rights basket had surged to over 12 percent. This growth reflects China's increasing influence in global trade.
According to Ahmad, the SBP's efforts to facilitate the use of RMB in trade and investment transactions include the opening of Letters of Credit (L/Cs) and availing financing facilities in RMB.
Both public and private sector enterprises in Pakistan can now choose RMB for bilateral trade and investment activities.
"As a result of the Central Bank's efforts to promote the use of RMB in trade with China, RMB-denominated imports of Pakistan from China have increased from about 2 percent in FY18 to around 18 percent in FY22," said Ahmad.
Supporting China-Pakistan BRI cooperation
The Chinese ambassador to Pakistan, Jiang Zaidong, said that the opening of the RMB clearing bank in Pakistan would provide crucial financial support for the two countries' cooperation in the Belt and Road Initiative (BRI).
This initiative reflects China's commitment to collaborating with Pakistan, facilitating the implementation of crucial agreements reached by their leaders. This includes developing an upgraded version of the China-Pakistan Economic Corridor (CPEC).
"The bank will promote the development of bilateral trade and support the construction of the CPEC to achieve mutual benefit and win-win cooperation of the two countries," ICBC's vice president Zhang Weiwu said.
The CPEC, launched in 2013, is a flagship project of the China-proposed BRI. It is a corridor linking the Gwadar port in southwestern Pakistan with Kashgar in northwest China's Xinjiang Uygur Autonomous Region, focusing on energy, transport and industrial cooperation.