Pakistan, China signed currency swap agreement
By Yasir Ameen - Dec 29th, 2011
Karachi: Pakistan and China have signed Currency Swap Agreement (CSA) for promoting bilateral trade and enhancing financing of direct investment between the two countries in the respective local currencies.
Yaseen Anwar, Governor State Bank of Pakistan (SBP) Thursday stated this while explaining CSA with Peoples Bank of China.
The CSA has been executed for a tenor of 3 years in respective of local al currencies, Pakistan Rupee 140 billion and Chinese Yuan 10 billion.
This is the second Currency Swap Arrangement that State Bank of Pakistan has signed, the first one being with the Central Bank of Turkey on November 1, 2011.
Governor SBP said that the principal objective of these swaps is to promote the use of regional currencies for trade settlement purposes and specifically in the case of China because the agreement will enhance the role of the Chinese Yuan in international trade and investment.
This agreement represents a significant achievement for both governments in promoting and enhancing not only bilateral trade, but also the opportunity to significantly increase investment in Pakistan in future, he added.
Since the CSA is a bilateral financial transaction, all terms and conditions apply equally to both countries and the pricing is based on standard market benchmarks which are widely acceptable in the respective domestic markets of the two countries.
Both Central Banks will have the ability to draw on the swap line any time during the tenor of the swap.
SBP can purchase Chinese Yuan (CNY) from Peoples Bank of China (PBC) against its local currency (PKR), and repurchase its local currency with the same Chinese currency on a predetermined maturity date and exchange rate.
Similarly PBC can also purchase Pakistani Rupee against Chinese currency but standard market pricing will apply on the date of utilization. Like any swap, the pricing is linked to interest rates differentials between the two currencies.