The State Bank of Pakistan (SBP) has introduced a new mechanism for letter of credit (L/C) transactions between Iran and Pakistan.

The mechanism, which is an additional one and does not replace any existing mechanism, applies only to L/Cs and they must conform to UCP600.

Exports to Iran

Under the new mechanism, an importer's bank in Pakistan will credit foreign exchange in the amount due under the L/C to an account held by the SBP.

On confirmation of receipt of funds in its account, the SBP will ask Bank Markazi Jomhouri Islami Iran (BMJII) to pay the exporter's bank for onward payment to the exporter in Iran.

Exports to Pakistan

On receiving payment instructions from an importer's bank in Iran, BMJII will ask the SBP to make payment in Pakistan.

The SBP, on receiving requests from BMJII, will credit the account of an exporter's bank in Pakistan in foreign currency.

Conditions

The new mechanism is available for payments for goods and services traded between Pakistan and Iran.

Transactions eligible for settlement under this mechanism must be denominated in euros or Japanese yen.

Participating banks must ensure that the transactions conducted under this mechanism do not violate international sanctions.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.