Pakistan May Use Yuan Instead of Dollar in China Trade

Adopting the yuan for bilateral trade could contribute to Pakistan’s trade deficit with China. Image Credit: Wikimedia Commons CC BY-SA 4.0

Pakistan is officially considering the option of replacing the US dollar with the Chinese yuan for bilateral trade between the two countries.

The word ‘yuan’ is technically used to describe a unit of Chinese money, while the currency is officially referred to as renminbi (RMB) or ‘people’s money’.

‘We are examining the use of RMB instead of the U.S. dollar for trade between the two countries,’ said Ahsan Iqbal, who is both Pakistan’s interior minister and its minister of planning and development.

Iqbal spoke while launching a ‘Long-Term Plan’ for the China-Pakistan Economic Corridor (CPEC) for 2017-2030. The plan was unveiled in the presence of China’s ambassador to Pakistan, Yao Jing.

Beijing has pledged to invest $60 billion in Pakistan as part of CPEC.

If Pakistan goes through with its proposal to adopt the yuan for bilateral trade, its importers could benefit more than its exporters. Pakistani importers would primarily benefit by avoiding commissions on dollar conversions.

In Pakistan’s 2015-16 fiscal year, China enjoyed a $6.23 billion trade surplus with Pakistan. Adopting the yuan for bilateral trade could worsen the trade imbalance between the two countries.

Last month, Pakistan turned down a Chinese request to use the yuan in the Gwadar Free Zone, the port area that marks the southern terminus of CPEC. China has been pouring money into Gwadar, committing about half a billion dollars’ worth of grants for a range of facilities including an airport, a hospital, and a college. Pakistani officials expect the port’s trade to balloon from 1.2 million tonnes to 13 million tonnes in 2022, according to Reuters.

But China’s interest in Gwadar and CPEC is more than economic. In theory at least, CPEC provides a palliative to Beijing’s Malaccan dilemma. China has also reportedly stationed some marines at Gwadar and its navy plans to make regular port calls there.

Chinese and Pakistani officials frequently resort to superlatives to describe their relationship: Sweeter than honey; closer than lips and teeth; higher than the Himalayas and deeper than the deepest sea. As CPEC tightens China’s embrace, we can expect some resistance from within Pakistan. But that friction is unlikely to fundamentally alter their close strategic relationship.

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