Article 17 – Interest Claims/Loss of Value
“Any claim for loss of interest, loss of value due to any exchange rate fluctuations, revaluations or devaluations are between the claiming bank and the issuing bank, unless such losses result from the non-performance of the reimbursing bank under a reimbursement undertaking.”
Explanation and Examples:
1. “Any claim for loss of interest, loss of value due to any exchange rate fluctuations, revaluations or devaluations are between the claiming bank and the issuing bank”
Explanation: This clause establishes that if there are any losses related to interest or value due to changes in exchange rates, or due to revaluation or devaluation of currencies, these claims should be directed between the bank making the claim and the issuing bank. Essentially, it means that the claiming bank cannot hold other parties accountable for these financial losses unless specific conditions are met.
Example: Suppose Bank A issued a letter of credit, and Bank B is the claiming bank. If there are fluctuations in exchange rates that affect the value of the amount being claimed, and if Bank B incurs a loss due to these fluctuations, Bank B must seek compensation from Bank A (the issuing bank) rather than from other involved parties. For instance, if Bank B claims $10,000 in foreign currency under a letter of credit and the exchange rate changes unfavorably, leading to a loss in value, Bank B should pursue a claim directly with Bank A.
2. “unless such losses result from the non-performance of the reimbursing bank under a reimbursement undertaking.”
Explanation: This clause adds an exception to the rule mentioned above. If the losses are due to the non-performance of the reimbursing bank (a bank that agrees to reimburse the issuing bank), then those losses are not solely between the claiming bank and the issuing bank. In such cases, the claiming bank may have recourse against the reimbursing bank as well.
Example: Consider a situation where Bank A (the issuing bank) is supposed to be reimbursed by Bank C (the reimbursing bank) for an amount under a letter of credit. If Bank C fails to perform its reimbursement obligation, and as a result, Bank B (the claiming bank) faces a loss due to exchange rate fluctuations, Bank B can then claim compensation not only from Bank A but also from Bank C. For example, if Bank C fails to reimburse Bank A, causing Bank B to suffer a financial loss due to currency devaluation, Bank B can seek recovery from Bank C as well as from Bank A.