Skip to main content

Pakistan nearly trades its economic sovereignty in currency swap arrangement with China

http://www.firstpost.com/world/pakistan-nearly-trades-its-economic-sovereignty-in-currency-swap-arrangement-with-china-4289933.html

World Tara KarthaJan 06, 2018 14:17:10 IST

The State Bank of Pakistan made a rather strange announcement a few days ago. A notice by the bank informed the public that the bank had carried out comprehensive policy related measures to ensure that both private and public sector enterprises could use the Chinese yuan for bilateral trade and investment activities. Even more puzzling to financial circles was the earlier announcement by the Foreign Office spokesperson that the two countries would "actively" use bilateral currencies for trade and investment. The problem is that the bilateral currency swap agreement between the two countries was signed during the time of prime minister Yousaf Raza Gilani well over six years ago. Apparently, that never really took off, with Chinese traders refusing to accept Pakistani currency for any kind of swap or otherwise.

Yuan. AFP

The original agreement signed in 2011, was for a period of three years and should have normally have been renewed without too much fanfare or discussion in the media. However, a number of other allied events made the announcement interesting in terms of Pakistan-China relations. Firstly, the announcement came as part of the signing of a new Long Term Plan(LTP) 2017-30 in the second week of December. Even while extolling the many opportunities presented by the plan, Minister for Planning and Development Ahsan Iqbal struck a note of caution, clarifying that even while the currency swap would facilitate the growth of the China-Pakistan Economic Corridor, the yuan would not be used inside Pakistan. This was in reference to a furore created earlier when at a Senior Officials Meeting (SOM) to discuss the LTP, the Chinese side was reported to have demanded that its own currency could be made legal tender in the Gwadar Economic Zone. The move was opposed by both the Ministry of Finance and the State Bank as an infringement of sovereignty, which it would certainly have been. The only other known country that uses Chinese currency as a legal tender in Zimbabwe after its own currency collapsed under severe hyperinflation.

Having satisfied sovereign considerations, however, the final document that outlines the LTP seems to go much further than a simple currency swap. After acid comments on "uneven economic development" and "adjustments" of policies of world powers in the region, the LTP notes that "The two countries shall promote the opening and development of the securities markets, support the multi-currency direct Financing of Pakistan's central and local governments, enterprises and Financial institutions in China, strengthen the cooperation between stock exchanges of the two countries, and support the two countries' enterprises and Financial institutions in carrying out direct Financing for projects along the CPEC in each other's capital markets." Note here that only Pakistan’s central and local governments are to be financed with Chinese currency backed projects. Even while the LTP notes backwardness in Xinjiang, there is obviously no question of any Pakistani currency being used for any project there, even if Pakistan has the capacity. The spread of institutions to be involved includes the stock exchanges, financial institutions, the central banks and almost everything else. This is not a simple banking exercise. It’s a near takeover.

Another paragraph outlines the various actions on the ground to implement the currency swap, which includes assigning of Chinese currency to banks to extend credit lines to fund CPEC projects, Cross Border Inter-Bank Payment systems, and several other actions, which logically should have been taken years ago. Clearly, earlier attempts to get the currency swap off the ground came to nought. In 2013, a State Bank invitation of bids for the sale of yuan came to nothing. The fresh announcement is therefore exactly what it is – a start afresh at a time when the CPEC import bill is getting unbearable. Pakistan’s trade deficit with China has tripled to almost $12 billion. Meanwhile, the State Bank pointed out that high imports of raw and capital goods had led to a serious current account deficit of $6.1 billion, with the third quarter figures the worst since 2009. The currency swap arrangement will certainly reduce the reliance on dollars and therefore give the economy a breather. However, this is hardly the critical question.

Currency swap practices are not of themselves a questionable exercise. Such arrangements promote bilateral investment and protect against currency shocks. Few will remember that it was the economic effect after 9/11 that led the US also to opt for temporary currency swap arrangements to avert a crisis. This was later revived and made permanent in the aftermath of the global financial crisis. Currency swaps arrangements by China are however prompted by a desire to internationalise the renminbi. The People’s Bank of China has 24 active currency agreements to the tune of RMB 2.71 trillion. For instance, it has one with the European Bank to a tune of 350 billion yuan. That’s hardly comparable to the 10 billion yuan in Pakistan. However, the difference is that Europe is a stable economic entity. Pakistan is not.

A second issue is the sheer size of the CPEC portfolio which the currency swap is aimed at promoting. This has grown—on paper at least—from $46 billion to at least $60 billion. The LTP document provides some insight into the range of projects, all of which constitute only one small part of the far larger Belt and Road Initiative. The document’s objective is stated baldly as "to form a new international logistics network and industrial layout" and "elevate the status of South Asian and Central Asian countries in labour division of the global economy". The envisaged labour division is also apparent since it Beijing’s stated objective to leverage its own technological and financial prowess. Earlier, in June, the influential Dawn had broken the story of the extent of the CPEC’s planned penetration into not just Pakistani businesses, agriculture, defence and telecommunications, but also into society itself. The currency was the last bastion of the Pakistani state that remained inviolate. It seems that this is now about to be breached.

Published Date: Jan 06, 2018 13:30 PM | Updated Date: Jan 06, 2018 14:17 PM

Comments

Popular posts from this blog

Balochistan to establish first medical university

https://www.dawn.com/news/1366135

The Newspaper's Staff CorrespondentOctober 25, 2017QUETTA: The provincial cabinet on Tuesday approved the draft for establishing a medical university in Balochistan.Health minister Mir Rehmat Saleh Baloch made the announcement while speaking at a press conference after a cabinet meeting.“The cabinet has approved the draft of the medical university which would be presented in the current session of the Balochistan Assembly,” he said, adding with the assembly’s approval the Bolan Medical College would be converted into a medical university.Published in Dawn, October 25th, 2017

5 Shia Hazara community members gunned down in Pakistan

http://m.hindustantimes.com/world-news/5-shia-hazara-community-members-gunned-down-in-pakistan/story-CHWR4lYByRHzf2KjHjMloI.html



Five members of the minority Shia Hazara community, including two women, were killed on Sunday in an attack by unidentified gunmen in Pakistan’s restive Balochistan province.This is not the first time that members of the Hazara community have been targeted in Quetta and other parts of Balochistan.(Reuters File Photo)Updated: Sep 11, 2017 00:20 ISTBy Press Trust of India, Press Trust of India, KarachiFive members of the minority Shia Hazara community, including two women, were killed on Sunday in an attack by unidentified gunmen in Pakistan’s restive Balochistan province.The gunmen targeted a car in Kuchluck area of Quetta while it was coming from the Chaman border crossing area, police said.The firing took place when the travellers had stopped at a filling station to refuel their vehicle. Five people of the Shia Hazara community, including two women, died in …

China’s 'Digital Silk Road': Pitfalls Among High Hopes

https://thediplomat.com/2017/11/chinas-digital-silk-road-pitfalls-among-high-hopes/


Will information and communication technologies help China realize its Digital Silk Road?By Wenyuan WuNovember 03, 2017In his speech at the opening ceremony of China’s 19th Party Congress, President Xi Jinping depicted China as a model of scientific and harmonious development for developing nations. Xi’s China wants to engage the world through commerce but also through environmental protection and technological advancement. This includes Beijing’s efforts to fight climate change with information and communication technologies (ICTs) that it plans to export along its “One Belt One Road” initiative (OBOR). Xi may have ambitious plans, but could China be throwing up obstacles in its own way?In his speech, the Chinese president emphasized the need to modernize the country’s environmental protections. The Chinese state is taking an “ecological civilization” approach to development and diplomacy, with a natio…