Although the date for the long overdue talks with the People´s Bank of China - China´s central bank - has not been fixed yet, a high-ranking central bank official told Republica that the delegation could be sent within a month.[break]
“It will probably be headed by an executive director of NRB,” the official said on condition of anonymity.
Contrary to expectations of many, talks held at this level are not expected to yield anything significant at the moment. “Our focus is primarily on establishing contact with Chinese central bank officials so that it could pave way for talks to be held at even higher level,” the official said.
One of core areas of talks, according to the official, will be establishing formal banking relation with China. Although Nepali and Chinese banks are currently working with each other and extending cross-border banking services to their respective clients, they are at informal level. But once central banks of the two countries formally enter into a relationship, modes of cross-border payment can be diversified, facilitating trade between the two nations.
Currently, most of the payments to Chinese parties are being settled via bank draft and telegraphic transfer (TT). These modes of payment are considered highly risky as they are similar to making cash payment, which raises chances of Nepali traders being duped in case of receipt of faulty consignments.
Although the official did not reveal other modes of payment that would be discussed, other NRB officials said Nepal is looking forward to pushing the Chinese central bank to promote Letter of Credit for trading, use of which has been nominal at the moment.
“If Nepal can persuade the Chinese central bank to introduce a provision that would make it mandatory for Chinese banks to accept Letter of Credit for transactions above certain amount, Nepali traders can benefit a lot,” the source said.
This is because, under LC transaction, banks work as guarantors for amount that has to be paid by traders and payments are released upon receipt of consignments. Trading via use of LC also provides ample time to importers to mobilize funds as only small portion of the total payment has to be paid upfront, while the rest can be paid once the delivery of the consignment is made.
But to formally start such service, the government first needs to get Chinese permission to open a bank account in the country. The fund parked in the account will work as security for payments that have to be settled by Nepali banks.
Since the amount sitting idle in the account does not give much return, Nepal government, during the talks, will also ask China to allow Nepal government to invest in Chinese securities market. “If we can invest in Chinese bonds and even stocks, we can maximize returns,” the official said.
During the talks that will be held between senior central bank officials of both countries, the Nepali delegation will also raise the issue of promoting Chinese direct investment in Nepal.
“We have heard Chinese investors are interested in investing in Nepal but are being held back due to regulatory and administrative obstacles,” the official said. “The team will listen to grievances of the Chinese side so that necessary amendments can be made to ease flow of Chinese investment into Nepal.”
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