Bangladesh and India agreed to settle a portion of their bilateral trade transactions in their respective national currencies, the Rupee and the Taka, to reduce dollar holdings.
The Indian rupee and the Bangladeshi Taka will be used to settle bilateral trade between India and Bangladesh. Both nations have been negotiating for months to abandon the dollar and use their national currencies for clearing transactions.
Sonali Bank and Eastern Bank will establish accounts with State Bank of India and ICICI Bank in order to facilitate cross-border transactions. Additionally, the two Indian banks will establish parallel accounts with the two Bangladeshi banks. The opening of these accounts – known as vostro and nostro accounts in global accounting – requires the sanction of respective central banks, according to Bangladesh Bank and commercial bank officials.
Months long discussion becoming successful
The Reserve Bank of India (RBI) and the State Bank of India (SBI) sent a delegation to Dhaka in April to discuss transaction procedures between the two countries.
On April 11, the delegation convened with the managing directors of Eastern Bank Limited and Sonali Bank to discuss taka and rupee payment methods for international business transactions.
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The settlement of transactions in taka and rupee has been discussed for months in light of the dollar crisis. However, not all transactions between the two countries will be conducted in their respective local currencies.
Several months ago, India’s central bank issued instructions for direct transactions in rupees, according to Md Mezbaul Haque, executive director and spokesperson for the Bangladesh Bank.
“In the light of this decision of the Reserve Bank of India, Bangladesh has reviewed the matter and taken a policy decision regarding bilateral transactions in taka and rupee. Any trader in Bangladesh who wants to open an LC in rupees for import or export can do so, once the due processes are completed,” he said.
Impact of transacting in own currencies
Currently, transactions between these two countries are conducted in US dollars, which are then converted to Indian rupees or Bangladeshi taka. Thus, both parties suffer some conversion losses. As imports have become more expensive, our foreign currency reserves have also begun to deplete.
Trade in Indian Rupee and Taka will reduce settlement costs and lower the exchange rate, which will benefit merchants in both countries.
The value of Bangladesh’s imports from India in the preceding fiscal year was approximately USD 13.69 billion. Two billion dollars will be traded in rupees, while the remainder will be paid in dollars.
The current value of Bangladesh’s exports to India is approximately USD 2 billion, and transactions will be conducted in rupees and takas.
Md Afzal Karim, chief executive officer and managing director of Sonali Bank Limited, stated, “Bilateral trade with India in taka and rupee will reduce pressure on the U.S. dollars. Both countries will benefit from this.” He added that additional Indian and Bangladeshi banks will progressively join the process.
The de-dollarization moves to lessen costs
Businesses have applauded the decision because they believe the new arrangements will boost trade and alleviate pressure on foreign exchange reserves. Bangladesh’s exports to India have increased over the past two years, and this trend is anticipated to continue.
Bangladesh and Russia are negotiating a currency exchange agreement. China has also proposed a currency transfer with Bangladesh, which is currently being evaluated by the government.
Several nations are facing a dollar crisis as a result of the Russia-Ukraine conflict-induced rise in commodity prices. Moreover, since the United States and the European Union imposed sanctions on Russia last year for its invasion of Ukraine, a number of countries have abandoned dollar trade. The US dollar, a global reserve currency since the end of World War II, appears to be losing its hegemony.
In addition, for geopolitical reasons, many nations are gravitating toward transacting in their own currencies and avoiding the US dollar.
Prior to Bangladesh, 18 nations had begun resolving international trade with India in INR. These nations include the United Kingdom, Russia, Singapore, Sri Lanka, Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Seychelles, Tanzania, and Uganda.
The BRICS nations – India, Russia, China, Brazil, and South Africa – have also begun discussions regarding the adoption of their own currencies for import and export, thereby avoiding the US dollar. Saudi Arabia has also decided to export petroleum oil to China in yuan.
With less dollar dependency, trading with India in INR or Taka, will be a little sight of relief for both Bangladesh and India. As many countries are joining de-dollarizing trend, it brings the discussion that the mighty dollar may be loosing its sparkle amid all these!