KARACHI: The Chinese central bank announced in a statement on Wednesday that the central banks of Pakistan and China have signed a memorandum of cooperation on yuan clearance in Pakistan. More information was omitted from the statement.
The agreement may open the door to Pakistan receiving a different type of payment option, increasing the use of the yuan for international trade between Chinese and Pakistani businesses and financial institutions.
Financial experts believe that since Russia accepted Chinese cash, the change may also enable Pakistan to purchase Russian oil at a lower price. Currently, Pakistan pays for its oil in US dollars.
Early in October, a spokeswoman for the US State Department told Dawn that Pakistan would profit from the US decision to “keep Russian oil available” in the market for low- and middle-income nations.
The spokesperson clarified that this loosening should not be interpreted as a move to loosen the sanctions the US had put in place against Russia for invading the Ukraine in February of this year, but he was also quick to note that “other countries will have to make their own choices based on their own circumstances in terms of energy imports.”
After invading Ukraine and receiving sanctions from the US and its allies, Russia has been attempting to sell its goods using the rouble, its own currency.
Numerous oil importers have also left Moscow as a result of Western sanctions, driving down spot prices for Russian crude relative to other grades to record lows.
Only the yuan, which made up over a third of all Russian transfers to China by the end of 2021, stood out as a “alternative” currency from the Russian perspective in outbound transactions. In contrast, dollars were used for 70% of Russia’s payments to India.
Russia and India have agreed to conduct business in their own national currencies, but Russian importers are hesitant to accept the Indian rupee because of the currency’s poor standing on the international market.
In a similar vein, Pakistan would be unable to transact with Russia in rupees, but it could be able to purchase Russian oil using the yuan it got from exports to China.
Additionally, a top banker stated that yuan clearing “would also allow Pakistan to obtain greater access to Chinese banks and it would be easy for Pakistan to make commercial borrowings from them.”
According to figures from the Indian government, increased oil purchases caused imports from Russia to soar to $17.24 billion in April through August of this fiscal year from roughly $3.2 billion.
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