KATHMANDU, Nov30: Nepal Rastra Bank (NRB) is preparing to sign an agreement with the Chinese central bank

by the third week of December to facilitate the use of Chinese currency, renminbi or RMB in short, in transactions between the two neighbouring countries.

NRB Governor Yubaraj Khatiwada and his Chinese counterpart will seal the deal during Khatiwada's visit to China scheduled for the third week of December, according to a highly placed source at NRB.

The agreement will basically open up avenues for banks and companies of the two countries to use renminbi in bilateral trade and investments.

Following the agreement, NRB will allow Nepali commercial banks to open accounts in renminbi in any Chinese bank to facilitate traders as the agreement paves the way for clearing and settlement of payments in renminbi, similar to the Indian currency used in trade with India.

Currently, any trade transaction with China is done in US dollars. However, the renminbi surpassed the Swiss franc to become the seventh most-used world payment currency in January. As the trade relation with China has been expanding in recent years, traders may get facility of trading in renminbi.

This provision would also lower the cost of doing business, as the option of making payments in renminbi rather than in an intermediary currency, particularly the US dollar, reduces the exposure to foreign exchange risks.

It is reported that even as Nepali banks are not barred from conducting transactions in renminbi, many refrain from doing so due to problems in settlement and lack of clear regulations.

China is the second largest trading partner and the largest foreign direct investment (FDI) contributor to Nepal. Total trade with China in last fiscal 2013-14 stood at Rs 81.55 billion. The country had imported goods worth Rs 78.57 billion against exports of Rs 2.98 billion to the northern neighbour .

FDI commitment from China was Rs 1.09 billion in first quarter of current fiscal 2014-15, that is, 43 per cent of total FDI commitment, according to Department of Industry.

Source: THT

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