KARACHI, Dec 27: The currency swap agreement with China and Turkey may help Pakistan to improve trade with these countries but unlikely to cause a dent in the demand of dollars that exert pressure on the rupee, said currency experts.
Last Friday a bilateral Currency Swap Arrangement (CSA) was signed between State Bank of Pakistan (SBP) and the People`s Bank of China (PBC).
The bilateral CSA has been concluded in Chinese yuan 10 billion and Rs140 billion for the purpose of promoting bilateral trade and investment and strengthening financial cooperation.
The total value of bilateral agreement with China in terms of dollar amounted to $3.142 billion (10 billion yuan plus Rs140 billion).
On November 1, Pakistan and Turkey also signed a currency swap agreement. The State Bank said the bilateral CSA has been concluded in Pakistan Rupee/Turkish Lira with size amounting to $1 billion in equivalent local currencies. Tenor of the both the agreements will be for three years.
Through the agreement is effective with the time of signing on December 23, traders and currency experts were found unclear on the subject.
A senior banker explained that the bilateral agreement will provide an additional facility to both exporters and importers and also to the investors of both the countries.
However, he said since the currency swap is new phenomenon the pace of implement is very slow. He claimed that China has signed such agreements with q4 countries but the implementation of currency swap deal is practically limited to two or three countries.
The international reports show that signing of currency swap agreements has been increasing.
Korea and China on October 26 agreed to double their bilateral currency swap to 64 trillion won ($56.65 billion). Korea also signed agreement with Japan on October 19 to expand currency swap from $13 billion to $70 billion.
Informed sources said the State Bank of Pakistan would soon come out with the guidelines and explanations on how to use the credit available under the bilateral agreement.
Traders said both exporters and importers would prefer to keep dollar as their liquidity instead of yuan which is strong currency but not tradable in the international market like dollar, pound, euro and Japanese yen.
However, they said opening letter of credit in yuan could provide additional line for payments or an investor could benefit from this agreement, which has over $3.1 billion liquidity facility.
“The currency swap agreement with China may improve trade between the two countries but there is no chance for any ease of pressure on dollar demand, at least in near future,” said Atif Ahmed, a currency dealer in the inter-bank market.
He said dollar has once again reached close to Rs90 on Tuesday.
The open market had the same view over the agreement. “The currency swap agreement needs time to influence currency market while we are watching massive fluctuations on exchange rate on day-to-day basis,” said Malik Bostan, Chairman Exchange Companies Association of Pakistan.
Importers are facing a panic-like situation in the dollar market and do not see any remedy out of this currency swap agreement.
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