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The sources in the Pakistan Ministry of Finance told Dawn that they are considering entering into currency swap agreements with China and Malaysia for containing the declining foreign exchange reserves. According to the sources the foreign investment has declined by 25 per cent.
The Ministry has already asked the State Bank to work out a strategy in consultation with the central bank of China for a currency swap arrangement.
According to a senior official of the ministry ‘China already has such an arrangement with 18 countries and the central bank of Malaysia is also working over this aspect,’
The figures available at the State Bank indicate that the foreign currency reserves declined by $700 million within the last one month.
The SBP data indicates that the dollar reserves on Nov 7, 2009 were $14.27 billion and it has dropped considerably to $13.57 billion by Dec 5 and this sharp decline has resulted in the increase of the green back rates to more than Rs84 per dollar.
According to the plan Pakistan will be approaching the trading partners like China, Malaysia and the like minded countries with proposals for the currency swap. As per the plan the Chinese authorities would pay in rupees for the purchases made by their companies in Pakistan.
Pakistan 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 in recent times.
Subsequently 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 adequate deposits of each others’ currencies,’ the plan said.
The plan also 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.