Banks now allowed foreign trade in Yuan

The Bangladesh Bank has allowed banks to maintain Yuan accounts alongside three other major foreign currencies, further easing the process of settling international trade transactions.

A circular issued by the regulator on Thursday granted authorised dealer (AD) banks the permission to maintain accounts in Chinese Yuan Renminbi (CNY) with their correspondents or branches abroad for settlement.

Before this announcement, banks had permission to settle foreign transactions through the American greenback, British pound sterling, and Euro accounts with their correspondents’ bank in abroad.

Speaking to The Business Post, a senior official of the central bank said, “Previously, in the case of Chinese Yuan, the authorised dealers could only maintain foreign currency clearing accounts with the Bangladesh Bank.

“We are now allowing banks to hold Yuan accounts abroad because the demand for this currency has gone up significantly following Russia’s invasion of Ukraine.”

In August 2018, the central bank had granted banks the permission to open foreign currency clearing accounts with the regulator in Yuan. At that time, the banks already had permission to operate clearing accounts for USD, Pound, Euro, Yen and Canadian Dollar.

The Chinese currency was not very popular in international trade before 2021, but it gradually gained popularity when the European Union and US imposed sanctions on Russia over the Ukraine invasion.

It put pressure on Russia because the country can no longer settle foreign transactions by USD. Russia then requested Bangladesh, along with other countries, to settle foreign transactions by other currencies including Yuan as an alternative to USD, the central bank official said.

Commenting on the issue, Mutual Trust Bank Managing Director Syed Mahbubur Rahman said, “Currency diversification is a great move in the context of foreign trade. It is the beginning of a journey to reduce dependency on a single currency for trade settlements.”

Zahid Hussain, former lead economist of World Bank Dhaka Office, said, “Bangladesh’s bilateral trade with China, or international trade, will no longer be dependent on the USD thanks to the central bank’s latest move.

“We can settle payments with Yuan now, but since the amount of export earnings from China is insignificant, as the amount of Yuan in the hands of Bangladesh is currently small.”

He continued, “It will now be possible to pay for a small part of a larger amount of imports with Yuan. However, the facility will not be able to play a significant role in reducing the ongoing USD shortage in Bangladesh.

“I do not think the central bank’s move to allow banks to hold Yuan accounts abroad has anything to do with geopolitics.”

Echoing the same, former Bangladesh Ambassador to China Munshi Faiz said, “Even before the Russia-Ukraine war began, China took the initiative to trade in Yuan with various countries.

“So, we do not think there are any geopolitical issues here. Rather, the monopolistic dominance of the USD would have resulted in an unhealthy competition in world trade. Now, the situation would ease to some extent.”

Import payments to China stood at $18.51 billion in the last fiscal year, an increase from $12.93 billion in FY21. Besides, export earnings from China reached only $683.43 million in FY22, compared to $680.65 million in FY21.