Currency swap deals likely with China, Malaysia

ISLAMABAD: The ministry of finance is considering entering into currency swap agreements with China and Malaysia for containing the eroding foreign exchange reserves, sources in the ministry told Dawn.

It has asked the State Bank to work out a strategy in consultation with the central bank of China for a currency swap arrangement.

‘China already has such an arrangement with 18 countries and the central bank of Malaysia is also working over this aspect,’ said a senior official of the ministry.

According to the figures available at the State Bank the foreign currency reserves declined by $700 million during one month.

The dollar reserves on Nov 7, 2009 were $14.27 billion, which dropped to $13.57 billion by Dec 5, the SBP data said.

The sharp decline has also increased the green back rates to more than Rs84 per dollar, the official said.

‘Trading partners like China, Malaysia and some other countries are to be approached with proposals for currency swap,’ the plan said adding that the Chinese authorities would pay in rupees for the purchases made by their companies in Pakistan.

Similarly, it would ask China to procure yarn in rupees and not in dollars, which is one of the commodities being purchased by Chinese importers in large quantities from Pakistan these days.

In turn, Pakistan would ask China to sell Pakistani importers machinery and other capital goods in yuan as against the existing arrangement of trading in dollar terms.

‘The arrangement requires that the central banks of both countries have deposits of each others’ currencies,’ the plan said.

The plan said that Pakistan was importing edible oil worth billions of dollars from Malaysia and similar arrangements will be proposed to them to sell edible oil in rupees, while ringgit deposits would be made in State Bank.

However, the proposed currency swap arrangement is at its initial stage and official of the State Bank told Dawn that it might take some time to prepare for this new option and make it operational with the banking system.