By Ayesha Mudassar ISLAMABAD, Nov 10 (INP-WealthPK): The Chinese yuan is delegated to become an international currency and play a significant role in global finance that will have major consequences for countries having large inflows of the Chinese capital. On October 1, the IMF's decision to include renminbi (RMB) in the SDR basket represents recognition of the Chinese currency at the world level and also carries ramifications for international finance. The decision boosted global demand and credibility of the Chinese currency. The China-Pakistan Economic Corridor (CPEC) is expected to substantially increase financial flows between the two countries, and the rise of RMB carries important consequences for the management of Pakistan's foreign currency reserves and exchange rate. The macroeconomic and monetary policy of the largest trading nation, China, has attained increasing attention over the few decades. Following this trend, there has been a good deal of work focusing on Chinese attempts to internationalize the currency, especially after the 2008 financial crisis. Provided the historical strength of China-Pakistan relations, Pakistan appeared as a natural location for China to pilot its ambitious CPEC. Pakistan experienced consistent security issues, governance problems, and infrastructure shortages embraced Chinese investment with a cordial welcome. Recently, there has been a focus on looking for alternatives to dollar-based financing of projects, and expansion of RMB in China-Pakistan cross-border trade. Using RMB can avoid unreasonable dependence on the US dollar and reduce the deterioration of Pakistan's US dollar reserves. CPEC is at the forefront in efforts to promote the use of RMB as an international currency. The renminbi seems confident to replace US dollars in various key CPEC projects. The two countries also announced RMB will be used to finance all future transport and energy projects arranged under CPEC umbrella. A hydropower plant and ML-1 railway line project are to be the first projects to be financed under this agreement. Pakistan has been one of the early partners of the People’s Bank of China (PBC) in its efforts to develop a bilateral currency swap. The two countries have signed and renewed the Currency SWAP Agreement at various times since 2011. The State Bank of Pakistan signed a three-year currency swap agreement with PBC for the amount of RMB 10 billion and PKR 140 billion. Upon maturities, the CSA has been rolled over and the last rollover is done in May 2018, with the amount increasing from RMB 10 billion to RMB 20 billion and from PKR 165 billion to PKR 351 billion, and also extended for 3 years. This would finance direct investment and trade between the two countries in their respective local currencies and provide support to the balance of payment in the short run. In 2020, SBP withdrew the full amount of RMB 20 billion for the support purpose of balance of payment. The authoritative bodies of Pakistan have taken various measures to enhance RMB based trade with China. RMB is an approved foreign exchange for Pakistan. As per existing exchange rules and regulations, all banks are allowed to accept RMB deposits and provide RMB loans. All enterprises, public and private, are free to choose RMB for investment activities and bilateral trade. SBP also allowed three banks – ICBC-Pakistan, Standard Chartered Bank, and Bank of China-Pakistan – to establish a clearing setup and local RMB settlement in Pakistan. This local settlement provides several benefits, including quick turnaround time, reduced banking system cost, and enhancing market liquidity of RMB. The central bank also set a market-based mechanism to publish RMB/PKR forward and spot exchange rates on a daily basis on the website to facilitate exporters, importers, and investors by improving transparency in the RMB-based trade transactions. In February 2020, Pakistan RMB-based imports reached 15 percent of total imports from China. The increasing importance of the Chinese currency in the international monetary system is also observed through CSA with different countries or regions. At present, more than 38 countries have signed CSA with China with a total amount of 3.67 trillion RMB. Similarly, more than 60 monetary authorities have pumped Chinese currency into their foreign exchange reserves and more than 240 countries and regions have conducted RMB cross-border transactions in almost 2,300 financial institutions. In 2019, the RMB-based trans-border receipts and payments amounted to 19.7 trillion RMB, which equals to 1.94% share in form of international payments and ranked 6^th in the world. CSA has been utilized by many countries to effectively cope with the volatility of capital markets and balance international payments.  Since 2008, with the advent of RMB denominated futures for crude oil, gold, and iron ore, RMB has been embracing much brighter prospects. To conclude, China is one of the world's leading foreign investors and the greatest source of investment, especially for Pakistan. The projects under CPEC, through extending access to new markets and new clients, bridge the gap to RMB-based transactions. With the measures and projects by both nations, CPEC, the share of RMB settlement in trade and economic activities keeps enhancing, and the scale of RMB investment is getting larger.