ISLAMABAD: Pakistan and Iran have signed a Memorandum of Understanding (MoU) to open channels in their respective central banks for bilateral trade transactions and put an end to the dollar account for clearance of Letter of Credit (LC).
The agreement has been signed to remove trade hurdles between the two countries.
“Despite the lifting of sanctions following a successful deal, Iran has still not been authorised by the US to use the dollar account for the clearance of LC for international trade,” said sources in the Ministry of Commerce.
“In order to avoid such difficulties, Pakistan and Iran have agreed to end the role of the dollar. The bank accounts will be opened in their respective currencies,” they added.
The Ministry of Commerce signed the MoU with the Iranian Ambassador to Pakistan. However, one of the officers noted that there is also provision in the mechanism that allows a person to use the dollar account in future and any trader can exercise this option once the US lifts sanctions on transactions with Iran.
Absence of a banking channel between the two countries has been a key hurdle in payment mechanism for bilateral trade, following the lifting of sanctions by the international community.
“This MoU will help the business communities of both sides to address their basic concern regarding the absence of a formal payment mechanism and will ultimately enhance the two-way trade,” added the ministry officials.
Published in The Express Tribune, October 12th, 2016.