Pakistan has turned down China’s request to allow its currency in Gwadar free zones on the grounds that the use of Chinese currency would hurt country’s economic sovereignty.
The decision was reached during the Senior Officials Meeting (SOM) that was held on Monday in Islamabad, a day before the 7th meeting of the Joint Cooperation Committee (JCC) – the CPEC’s decision making body.
Apart from the currency issue, there were other issues regarding the Framework Agreement of the Karachi Circular Railways (KCR) which is worth over $2 billion. The KCR project will only be signed once the clauses are agreed upon, at the political level of both the countries.
According to the officials, the matter will be discussed in the meeting of Joint Corporation Committee (JCC) by Planning Minister Ahsan Iqbal.
The main reason for China opting for its own currency was to avoid the exchange rate risks that are associated with Pakistani rupee and US dollar. Both the parties agreed that the financial arrangements will be done through current Currency Exchange Swap Agreement which is going to expire next month. But now the currency swap will be extended and the limit will also be increased to $500 million.
This was not the first time China expressed the need for its currency to be allowed in Pakistan. Previously, China wanted to make it part of the final draft of the Long Term Plan (2014-2030). But Pakistan clearly refused China’s demand to maintain the sovereignty of Pakistani currency.
While the currency demand was not accepted by Pakistan, China’s demand for establishing Customs Special Supervised Areas (CSSA) on the CPEC route for the Special Economic Zones (SEZs) got duly accepted.
After the initial phase of the project, both the countries were satisfied with the progress of energy projects that constitute about 72% of the total CPEC projects. More energy projects will also be added in order to attain full capacity of energy generation through CPEC.