Central Bank Seeking New Payment Agreements

Negotiations with the Central Bank of the Republic of Turkey as well as a number of countries from Latin America and Asia to sign currency swap arrangements are underway with a handful of proposals also being sent to African countries, the deputy governor for foreign exchange affairs at the Central Bank of Iran said.

"A payment arrangement with the Turkish Halk Bank to pay for trades in national currencies was almost thorough to the point where CBI issued the related directive to Iran's banking system, but unfortunately the deal did not reach the implementation stage. However, CBI is negotiating with CBRT to sign a currency swap deal and hopefully negotiations will lead to an agreement," Gholamali Kamyab was also quoted as saying by IBENA.

He noted that CBI has also signed a Banking and Payment Arrangement with the State Bank of Pakistan in April, which will be implemented in the foreseeable future.      

“However, the agreement with Pakistan is our most serious deal but both central banks need to invite banks in their respective jurisdictions to act as authorized entities for undertaking trade transactions under BPA,” he added.

Kamyab added that CBI will shortly inform Iran’s banking system of the new directive while SBP will do the same for Pakistani banks.

According to the statement, the objective of BPA is to provide a settlement mechanism to promote trade between Pakistan and Iran.  This mechanism will be used for trade payments conducted via letter of credit and in accordance with international laws and regulations.

State Bank of Pakistan has announced that it will issue more details of the mechanism in due course. SBP expects this agreement to help strengthen trade links between the two countries.

The official noted that currency swap deals have always been on the agenda of CBI, but now that it is a legal obligation, the matter will be followed diligently.

CBI announced in January 2017 that Iran will stop using the US dollar as its currency of choice in financial and foreign exchange reports from the new fiscal year that started in March.

Earlier, it was decided to suspend the use of US dollar in foreign transactions and work on bilateral currency swap deals, which was followed by Moscow and Tehran’s announcement that they were going to set up a joint bank account for transactions in national currencies, such as in food trade. However, the deal did not materialize.

The CBI deputy governor referred to similar deals with the Chinese, the number of which is 30-40, noting that these deals are a kind of currency swap.

“For instance, if there is need for yuan, dollar and euro are given and yuan is received, which will eventually be returned with interest when the period comes to maturity. But our problem is not resolving these issues, but clearing the payments,” he said.

Kamyab further said these deals face no obstacles vis-à-vis correspondent relations, sanctions or banking ties but “our goal is to ease the process for exporters and importers”.

Currency swap deals have also been introduced in the country’s sixth five-year development plan (2017-22) as a major economic policy. The plan envisions Iran becoming a trade hub with strong ties to regional and Southeast Asian countries.