By Hamid Mahmood ISLAMABAD, June 14 (INP-WealthPK): The increasing trade with China in the local currencies will help Pakistan to reduce its dependence on the dollar, WealthPK reports. The State Bank of Pakistan (SBP) has taken policy measures to ensure that the Chinese currency is used in imports, exports and financing operations. Prime Minister Shehbaz Sharif recently directed the SBP authorities to hold meetings with the officials of two leading Chinese banks -- Industrial and Commercial Bank of China (ICBC) and the Bank of China (BOC) -- to discuss the use of the Pakistani rupee and the Chinese currency renminbi (RMB) for bilateral trade between the two countries. The economic experts said that it will lessen reliance on the dollar and relieve major pressure on the foreign exchange reserves of Pakistan if the swap agreement is implemented in letter and spirit. The currency swap agreement, signed in 2011 to enhance bilateral trade, investment and financial cooperation, authorised the Pakistani businessmen to pay for Chinese goods in the local currency. According to the SBP, the currency exchange agreement under China-Pakistan Economic Corridor (CPEC) will be extended. The two neighbouring countries have agreed to use it for bilateral trade. To promote trade channels and remittances in RMB, the SBP has authorised the BOC to set up a local Chinese yuan settlement and clearing mechanism in Pakistan. To facilitate the settlement of yuan-based transactions, such as the transfer of money to and from China, BOC may open local currency accounts with Pakistani banks. The BOC can also provide RMB liquidity to the interbank market for the settlement of yuan-based transactions. The SBP has allowed ICBC to provide similar services to people in Pakistan since 2015. In early 2020, Habib Bank Limited (HBL) became the first Pakistani bank to start operations in China. It was welcomed by both the Pakistani and Chinese governments. These measures are part of the SBP’s strategy to increase trade with China in local currencies. The settlement and clearing mechanism are expected to reduce the cost of the domestic banking system while dealing with the yuan besides increasing market liquidity and enhancing trade and investment transactions in the Chinese yuan. According to the SBP, the programme will further cement China-Pakistan relations and strengthen the national economy and the banking industry in the country. The financial cooperation will facilitate Pakistani exporters, wishing to ship their goods to China. The major challenge for exporters is documentation and language, which makes it difficult for traders to complete the paperwork. The banking lines between the two countries will help Pakistani exporters to overcome this barrier. On the other hand, the Export-Import Bank of China (Exim Bank) helps in the execution of various projects under CPEC. On several occasions, the top management of Exim has expressed the hope that the projects will help Pakistan to achieve its development goals. Swap of currencies by both the countries reduces the risk associated with foreign currencies, as well as provides benefits of locking in fixed exchange rates for a longer period. The risk in performing currency swap deals is quite low and liquid, with the parties able to reach an agreement at any point during the transaction’s lifecycle. Experts told WealthPK that the PKR-RMB alliance was a positive step as it would enhance cross-border corporate cooperation and collaboration between the two countries. China is a vast market for Pakistani investors with a large pool of potential clients.