RYTE is Right

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Dr M Ali Hamza

Pakistan’s economy is in doldrum and at the verge of collapse.  Long ques of vehicles at filling stations, extended blackout through-out the country, desperate fights for food, never stopping price hike of petroleum and non-petroleum goods, state bank refusal to open Letter of Credit (LCs) because of lowest ever dollar reserves in the country, this all sketch the picture of worst economic crises since its inception. Even in such economic condition Pakistan’s major political parties are face to face in a fiery battle that don’t seem to get resolved even if general elections are held in time. Though 2023 brought no sparkling start for the country, but there is still a visible silver line of hope. 

The arrival of Nikolay Shulginove: Russian Energy Minister in Islamabad and his statement “If term agreed with Islamabad, Russia would start exporting oil to Pakistan by the end of March this year” is a vital move in global politics. After the cold war, Pakistan and Russia took 4 decades to reach to a level of bilateral relation where a trade dealto start selling cheap oil to energy-starved Pakistan is about to finalize.This will fulfill 35% need of oil for Pakistan and make Islamabad a customer of Russian crude oil at a time when Moscow’s cash inflows are hurt by an EU oil cap and sanctions. Good for Russia, but what is there for Pakistan?

As Islamabad and Moscow are having no commercial ties for decades, so the idea is novel in its present scenario and to resume these relations might unleash ways to start a new era of bilateral relationship and this surely hits the interests of many global players. As Pakistan has been quarrelling a balance of payment crises with foreign exchange reserves; falling to around 4 billion USD, hardly covers few weeks import mostly for oil. The business community of Pakistan is ready to handover the keys of their plants to present government that has shown week muscles in handling economic situation of the country. Considering Pakistan’s flat broke economy, one of the clauses in the agreement is, thatpayments might be made through a “friendly” country, most probably China; a power play for Beijing, whose Yuan will be used for the transactions, giving the currency a chance as an alternative to the US dollar in global trade, and an opportunity for Pakistan to overcome the nastiest economic puzzle. So Russian Yuan Trade Engagement (RYTE) with Pakistan appears to be totally right for Pakistan and seems to be in the best interest of regional powers. It is important to understand that whatever is happening locally has its strings attached globally.

Five decades ago, the historic decision of former US President Nixon to suspend the convertibility of the dollar into gold; which changed unilaterally the global monetary system and forced the globe to recognize the hegemonic power of US dollar, since then world relies on the US dollar as the dominant reserve currency.

In the new millennium ongoing transformation of the world order from globalization to regionalization, characterized by the transition from a unipolar to a multipolar currency system, has seen the emergence of new currencies as alternative to the hegemony of the US dollar. As China is presumed to be a leading force of a future global monetary system, where the dependency on a single currency is not appreciated, in this scenario ChineseYuan is gradually expanding and receiving recognition as the most preferred non-Western currency for the developing world.

Data from international insurance company Allianz Trade showed that the share of Chinese trade settled in Yuan rose from less than 20 per cent to nearly 30 per cent between early 2020 and August 2022.By the end of 2021, the People’s Bank of China (PBOC) had signed bilateral local currency swap agreements with 22 countries along the BRI, including European Union, and had set up Yuan clearing arrangements in eight countries. Moreoverthe 20th National Congress of Communist Party of China (CPC); held in Oct 2022, reiterated and stressed the importance of promoting the internationalization of the Chinese Yuan through an aggressiveexpansion strategy.A toping on this all is, that today China has become a forerunner in the development of sovereign digital currency, known locally as the e-CNY. Chinese do recognize that that process of Yuan internationalization can only gain ground through a stronger synergy between e-CNY and the Cross-border Interbank Payment System (CIPS); a clearing and settlement service for cross-border Yuan payments similar to the SWIFT system.Financially speaking, the Yuan clearing and settlement in Pakistan will help to reduce the exchange rate risk, as well as long and complex procedure of US dollar-based transaction via New York, especially when Pakistan is facing forex reserves depletion as the rupee faces pressure from rising interest rate set by the state and a stronger US dollar.

So RYTE is totally right, but there are thousands of slips between the cup and the lips, and it is pertinent to anticipate all these slips for programmed responses. Surly eastern powers along with their allies like Pakistan must have done so.  The theme of Annual Conference of Financial Street Forum 2022 held at Zhejiang University International Business School (ZIBS) says “Forge ahead toward a shared future”; represents the voice of all developing countries like Pakistan. Economic suppression that brings social depression should not be the future of developing countries. This economic suppression can only be tackled through balancing the financial power between east and west, but countries like Pakistan desperately need to show courage for inner reflection and fix the inside anomalies with iron hand. This courage must extend to a limit where changing governance system of the country altogether, should be among the options.