State Bank of Pakistan (SBP) and Bank Markazi Jomhouri Islami Iran (BMJII) have signed an agreement to provide a trade settlement mechanism between Pakistan and Iran.

The mechanism will facilitate letter of credit (L/C) transactions between the two countries.

L/C terms

Deputy governor of SBP, Riaz Riazuddin, and vice governor of BMJII, Ghulamali Kamyab, signed the Banking and Payment Arrangement (BPA) on behalf of each country's central bank.

The BPA will be used for the payment of transactions conducted on L/C terms and in accordance with international laws and regulations.

Next steps

Both central banks will soon invite banks in their respective jurisdictions to act as authorised banks under the BPA. Additionally, the SBP will publish details of the mechanism.

The BPA marks a step towards formal banking channels between the two countries and follows in the wake of an agreement between the Iranian president and Pakistan's prime minister to take tangible measures to facilitate bilateral trade between the two countries.

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