Pakistan to ditch dollar in trade with Iran

Pakistan’s media reported on Thursday that the country is preparing to ditch the dollar and use euros in trade with Iran.

The Express Tribune has quoted an the State Bank of Pakistan (SBP) as announcing in a statement that a plan has been prepared to enable Pakistani businessmen to open letters of credit (L/Cs) for imports from Iran in euros instead of dollars.

The policy has been devised because some US sanctions are still in place that could obstruct payments to Tehran, the daily reported.

The SBP has accordingly informed the Ministry of Commerce and other stakeholders in a recent meeting that it was not possible at this stage to open LCs in dollars in trade with Iran. 

If the L/Cs were to be opened in dollars, clearance from US intermediary bank would be needed. This is while certain sanctions are still in place in the US and that would cause trouble for the Pakistani businessmen, added the Express Tribune. 

The plan will be discussed together with a series of other economic issues during the upcoming visit to Islamabad by Iran’s President Hassan Rouhani. 

The SBP announcement follows remarks by a senior US State Department official that international banks will face no trouble if they process Iran transactions that are based on euros.

Chris Backemeyer, Principal Deputy Coordinator for Sanctions Policy at the US Department of State, told reporters in Dubai on Wednesday that Washington would not penalize foreign banks for doing business with Iran in currencies other than the dollar.

Indications have been growing lately that a legacy of hefty fines by the US on banks that are caught for violating Iran sanctions is deterring businesses from trading with the Islamic Republic.

Reuters in a report earlier this week warned that corporate leaders have already become frustrated over this even though the sanctions removal against Iran would have naturally meant the doors are open for investments in Iran. 

Iran saw a series of draconian economic sanctions lifted in mid-January when a nuclear deal that it had sealed with the P5+1 – the five permanent members of the Security Council plus Germany – lifted when the deal was eventually implemented.

Nevertheless, the American banks are still banned from dealing with Iran as part of an old US trade embargo that still remains in place.  Accordingly, this is effectively blocking any transactions with Iran which is based on US dollars because they would ultimately have to be cleared in the US. 

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