To reduce the pressure on the dollar, Bangladesh and India have agreed to settle certain parts of bilateral trade using their respective currencies.
Sonali Bank and Eastern Bank will open accounts with their Indian lenders State Bank of India and ICICI Bank to transact in their respective currencies.
Both the Indian banks will also open similar accounts in the two Bangladeshi banks.
Officials of Bangladesh Bank and related commercial banks said that opening these accounts — known internationally as Vostro and Nostro accounts — would require the approval of the respective country’s central bank.
CEO and Managing Director of Sonali Bank. Afzal Karim said, “If there is bilateral trade with India in taka and rupee, the pressure on the dollar will reduce. Both countries will benefit from this.’
He told The Business Standard that more banks from the two countries will join the process gradually.
Amid the ongoing dollar crisis caused by the Russia-Ukraine war, there has been talk for months about settling bilateral trade transactions in taka and rupee.
But not all of the bilateral trade will be in its own currency.
Exports from Bangladesh to India are about $2 billion. Therefore, the two countries will complete transactions equivalent to 2 billion dollars in taka and rupee.
On the other hand, Bangladesh’s import from India in the last financial year was about 13.69 billion dollars. Of this, 2 billion dollars will be transacted in rupees, but the rest will be paid in US dollars as always.
According to the report initiatives have been taken to transact directly in taka-rupees without the inclusion of any third currency.
“Once the central banks of both the countries approve, we will inform the customers that import and export with India can be done directly through rupees. Interested traders can then directly open an LC for Rs. It will reduce the cost of traders. Again, the additional pressure caused by the demand for dollars will come down,’ said high official of Bangladesh Bank.
A delegation from India’s central bank Reserve Bank of India and State Bank of India visited Dhaka earlier this month to discuss the transaction process between the two countries.
They met at the EBL on April 11. There, the visitors along with Managing Director of EBL, Managing Director of Sonali Bank discussed the payment method of commercial transactions of two countries in Taka and Rupee.
Executive Director and Spokesperson of Bangladesh Bank. Majbaul Haque said that the Central Bank of India had issued instructions several months ago regarding direct transactions in rupees.
In the light of this decision of the Reserve Bank of India, Bangladesh has reviewed the matter and taken a policy decision to conduct bilateral transactions in taka and rupee.
“If any Bangladeshi businessman wants to open an LC in rupees for import or export, he can do so,’ he said.
He also said that there are some procedural issues in paying such transactions.
Businessmen have welcomed this initiative. They believe that this system will reduce the pressure on the expansion of trade and foreign exchange reserves.
Bangladesh’s exports to India have been increasing for the past two years. The export volume is expected to increase further.
Bangladesh-India Chamber of Commerce and Industry said ‘We have been requesting the central banks of both countries to complete the transaction equivalent to Bangladesh’s exports to India in taka and rupee. We have also discussed this matter during Prime Minister Sheikh Hasina’s last visit to India”.
Due to the rise in commodity prices due to the Russia-Ukraine war, several countries are facing a dollar crisis.
Apart from this, due to geopolitical reasons, various countries around the world are becoming interested in doing transactions in their own currencies, avoiding the dollar.
The BRICS countries—India, Russia, China, Brazil and South Africa—have also started discussions on starting import and export in their own currencies, avoiding the dollar.
Saudi Arabia has also decided to export fuel oil to China in yuan.