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Bilateral Payments Arrangement (BPA)
BPA is a scheme for the settlement of net monetary obligations arising from trade between pairs of countries. BPA consists of 2 important elements:
- The undertaking of sovereign risks by the Central Banks to facilitate settlement of monetary obligations among commercial banks in both countries arising from trade
- The undertaking by the Central Banks of both countries to settle the net balance arising from the trade conducted between the two countries
FEATURES
- Periodic settlement of net balance between signatory Central Banks
- Central Banks grant net credit limit to each other
- Letters of Credit (LCs) must be marked with special reimbursement clause
- Trade transactions are carried out through the existing financial or banking system
BENEFITS
- Guaranteed payments in domestic currency for exports and elimination of the credit risk and exchange risk
- Greater confidence to trade with developing countries
- Easier access to banking facilities
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