Pakistan, China sign yuan clearing deal

The central banks of Pakistan and China have signed a memorandum of cooperation on yuan clearance in Pakistan, according to a statement released by the Chinese central bank on Wednesday.

The agreement might pave the door for an alternate payment method for Pakistan, thereby increasing the use of the yuan in cross-border transactions between Chinese and Pakistani businesses and financial institutions.

As the Chinese currency is acceptable to Russia, the financial sector believes that it may also assist Pakistan in purchasing oil at a discount from Russia. Pakistan now pays for oil in U.S. dollars.

A US State Department spokeswoman told Dawn at the beginning of October that Pakistan might be one of the beneficiaries of a US decision to “keep Russian oil available” on the market for low- and middle-income nations.

The spokesperson stated that this should not be interpreted as a move toward easing the sanctions the United States imposed on Russia for invading Ukraine in February of this year, but he was quick to point out that “other countries will have to make their own decisions regarding energy imports based on their own circumstances.”

As a result of sanctions imposed by the United States and its allies in response to Russia’s invasion of Ukraine, Russia has been attempting to export its goods in its own currency, the ruble.

In addition, Western sanctions have pushed many oil importers to turn away from Moscow, resulting in record-low market prices for Russian crude relative to other grades.

From the Russian perspective, the only ‘alternative’ currency that stands out in outbound transactions is the yuan, as its percentage of Russia’s payments to China increased to about one-third by the end of 2021. 70% of Russian payments to India were made in dollars.

India and Russia have agreed to conduct trade in their own national currencies, but Russian importers are hesitant to accept the Indian rupee due to its low market value.

Similarly, Pakistan could not trade with Russia in rupees, but the yuan it got from exports to China could be used to purchase Russian oil.

In addition, yuan clearing “would also help Pakistan gain better access to Chinese banks, making it easier for Pakistan to obtain commercial loans from them,” according to a senior banker.

In the first eight months of the current fiscal year, India’s imports from Russia rose to $17.24 billion from approximately $3.2 billion a year before mainly to increased oil purchases.

53.4 percent of payments from India to Russia were made in rubles in 2021, while 38.3 percent were made in dollars. India became the leading overseas country to adopt the Russian ruble.