The central bank of China People’s Bank of China (PBOC) has signed a 20 billion yuan or $3.13 billion currency swap deal with Pakistan. It is a three-year bilateral agreement with Pakistan.
This agreement was announced by the China People’s Bank of China (PBOC) on its website claiming that it will boost bilateral trade and investment in the countries.
As per Xinhua, China and Pakistan believe that the extension will benefit both the countries. It will boost economic growth through investment and bilateral trade. Though this agreement is valid for three years if both the countries are willing it can be extended further.
A currency swap deal enables two organizations or countries to exchange payments in one currency for same amounts in the other currency to help bilateral trade settlements and ensure liquidity support to the financial industries.
A currency swap is a legal agreement, between two parties like in this case between China and Pakistan to exchange the principal and interest rate obligations in different currencies.
Earlier in May, Bank of China officially launched the Yuan Currency along with its clearing and settlement services in Karachi, Pakistan. A tweet stated, “Bank of China has rolled out yuan clearing & settlement services in Pakistan, to push redback’s expansion in S Asia. It will help mitigate exch. rate risks, lowering transaction costs n facilitating trade n investment btw Pak China, State Bank of Pakistan greenlit the plan in April.”
Interesting: China is the largest trading partner of Pakistan