Sunday, May 05, 2024
For the first time, Bangladesh's bilateral trade with India using rupees, in addition to US dollars, is set to start on Tuesday. It will be rupees for now, and if the trade gap between the countries decreases, transactions will also take place in taka.
Sonali Bank Ltd and Eastern Bank Ltd of Bangladesh and the State Bank of India (SBI) and ICICI Bank of India are the banks that will usher in a new era by kicking off the trading in rupees between the countries.
The bilateral transaction inauguration event, jointly organised by Bangladesh Bank (BB) and the Indian High Commission in Dhaka, will be held at a hotel in Dhaka on Tuesday. Businesses, economists and the central bank have welcomed the initiative.
Industry insiders said that the two countries have decided to start this transaction initiative with rupees for four reasons.
Firstly, both countries are in a USD crisis and this move will benefit both. Secondly, it will reduce the cost of exchanging currencies twice for importers and exporters.
Thirdly, the move will save time in transaction settlement. Fourthly, other surplus currencies can be converted into rupees and used for the settlement of transactions.
BB Executive Director and spokesperson Md Mezbaul Haque told The Business Post that this is a new era of trading with India. Settling import payments in rupees will save additional costs of bilateral trade.
“When we conduct transactions with India in USD, we have to convert taka to USD and then Indian rupee. This leads to exchange loss,” he said.
BB has permitted Sonali Bank, Eastern Bank and SBI Bangladesh to open nostro accounts with the two Indian banks for bilateral transactions. Trades with India in rupee will open after Tuesday’s inauguration, he added.
Abdul Matlub Ahmad, president of the India-Bangladesh Chamber of Commerce and Industry, said, “We have been requesting the governments of the two countries for a while to reduce the pressure on US dollars.”
“Once the new system becomes effective, we will be able to trade in rupees and USD. This will save around 4-6 per cent cost of business,” he added.
He said that when the transactions with rupees start in full swing, energy credit in rupees will be initiated. With the credit system, it would be possible for Bangladesh to save about $3-4 billion a year.
Mohammad Hatem, executive president of Bangladesh Knitwear Manufacturers and Exporters Association, said that this move will reduce the exchange rate loss and dependency on USD. He also urged the authorities to take the initiative to start transactions with taka as well.
Trade gap and geopolitics
Bangladesh’s current trade deficit with India is huge and increasing even though the former’s export is increasing. The country’s trade gap with India was $7.7 billion in FY2017-18 and it jumped to $11.7 billion in FY2021-22.
At a seminar on Sunday, former BB governor Atiur Rahman said, “Trade in the Indian rupee will help Bangladesh to reduce the pressure on foreign exchange by around $1 billion in a financial year.”
“Although Bangladesh exports around $2 billion to India, all traders do not show interest to trade in this medium. So, we cannot get as much benefit as we export. However, it will still bring the pressure down a little when Asian Clearing Union (ACU) payment is made every month,” he said.
Since Russia invaded Ukraine and the war started, Russia, China and India have taken various initiatives to reduce the dominance of the USD as an international currency.
Asked whether the rupee transaction between Bangladesh and India will create any kind of geopolitical tension, industry people said there is no such concern since the amount is not massive and USD transactions will not stop.
Atiur said, “The Indian rupee is not an international currency. But the Chinese Yuan is. This move is just a trade settlement through local currency to reduce the dollar crisis and to strengthen and boost regional trade and relation.”
Matlub added, “Our total export volume now is $55 billion and we are talking about only $2 billion here. Meanwhile, transactions with India in USD will also continue. So I don't see any such geopolitical concern here.”
