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China, Iran discussing currency swaps

Iranian officials say talks have started with China to use a currency swap mechanism in trade transactions between the two countries.

Iran and China are moving toward a crucial currency swap mechanism which is expected to help ease their mutual trade activities.   

The mechanism envisages payments in yuan to suppliers of commodities and services to Iran in return for the oil that Beijing purchases from Tehran, Iran’s media reported on Sunday.

Majid-Reza Hariri, the deputy head of Iran-China Joint Chamber of Commerce, has been quoted by the media as saying that the two countries are in early talks over the scheme, adding that they yet need to work out its related technicalities.  

Hariri said it is not clear which specific model of currency swap China plans to use for its trade activities with Iran. 

He said the payments in yuan will both help strengthen the Chinese currency against the dollar and will also help Iran dodge the limitations that the sanctions have created. Nevertheless, both Tehran and Beijing still have a long road ahead to turn into a working mechanism, the official added.

On a related front, Ali-Asqar Haji, Iran’s ambassador to China, told reporters last week that the Islamic Republic has just received the text of the agreement of swapping currencies with China. Haji said Tehran is determined to make this mechanism operational and will try to prepare the grounds for its implementation.  He further emphasized that the agreement could be signed – among many other documents – during an upcoming state visit by the Chinese President Xi Jinping to Tehran.  

China reportedly owes Iran over $20 billion in outstanding oil payments. The cash has been frozen in overseas banks after the US-led sanctions made it difficult for Beijing to transfer money to Tehran. Accordingly, the two countries have reportedly reached a deal to settle a part of the frozen money through China’s funding of Iranian petrochemical projects.

Iran said this past Friday that China has started the proceedings to provide funds as much as €16 billion for the development of Iran's petrochemical projects. However, the red-tape should be largely blamed for the delay in China's provision of financial facilities to Iran's petrochemical projects, said Amir Hassan Fallah, the director for investment affairs of Iran's National Petrochemical Company (NPC).   


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