Iran's Bank Pasargad and Russia's Sberbank have announced that they have established a banking guarantee letter (BGL) which they describe as a 'novel' financial instrument to facilitate trade between the two countries using their own currencies.

Reports from the exhibition suggest that the BGL can be coupled with domestic L/Cs with the aim of facilitating smoother trade transactions in the national currencies of the two countries, the Iranian rial and the Russian rouble.

Novel response

While the BGL is not a new financial instrument, the way the two banks plan to couple it with domestic L/Cs appears to be an novel response to the international sanctions that have marginalised both Russia and Iran from the global financial system.

In April, Iran claimed it had established systems capable of bypassing the SWIFT messaging platform to conduct L/C and other trade operations with Russia over two interconnected national platforms (DC World News, 11 April 2023).

Cryptocurrencies and blockchain

The banks announced their new BGL coupled with domestic L/C offering at the 15thInternational Financial Industry Exhibition held in Tehran last week.

Participants at the exhibition also discussed plans for integrating cryptocurrencies and blockchain technology into their financial systems to establish alternatives to conventional US dollar-denominated trade finance.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.