A new era dawns
FROM PAGE B1
market emanating from the shortage of the US dollar has prompted the BB to settle bilateral trade by using the currency of the neighbouring country.
The new arrangement will allow Bangladesh to perform foreign trades with India to the tune of $2 billion, equivalent to its current annual export receipts from the country.
Last month, BB Governor Abdur Rouf Talukder said Bangladesh is looking to carry out trade with India in the rupee up to the level that is covered by the export earnings from the country.
Bangladesh’s imports from India far outweigh exports to the country. Its exports stand at $2 billion against imports of $18 billion through official channels.
If the trades through the unofficial channel are added, imports would go up to $27 billion, Talukder had said.
HOW RUPEE SETTLEMENT WILL WORK
As per plans, ICICI Bank and SBI will settle imports with Bangladesh in the rupee. And the amount will be deposited with the Bangladeshi banks’ nostro accounts with the two.
In the second phase, the Bangladeshi banks will settle the import payments on behalf of the local importers by using the rupee deposited with the counterparts.
The central banker, however, says that the dependency on the dollar will not reduce immediately as only $2 billion will be converted to the Indian rupee.
Bangladesh’s imports stood at $75.60 billion in 2021-22.
But local businesses will be able to avoid an exchange rate loss of around 1 per cent if they trade in the INR as they would not require to convert US dollars into the rupee, the central banker said.
A high official of a commercial bank in Dhaka says that some new windows to settle import payments and other foreign exchange-related transactions in the INR will open in the future.
For instance, if Bangladesh can manage credit lines from India in the INR, such loans may be used to carry out bilateral trades, including for the payments of credits.
Besides, local banks will be able to take loans in INR with prior approval from the BB, and the amount can be used to perform bilateral trade as well.
“Such windows will help reduce the dependency on the dollar during the difficult time like we are going through now,” he said.
India started to allow to settle its foreign trade in the INR in July last year when the Reserve Bank of India (RBI) decided to facilitate international trade in the rupee.
MOVE AWAY FROM DOLLAR
Other nations are also exploring ways to cut reliance on the American currency, which was involved in nearly 90 per cent of global forex transactions in 2022, making it the single most traded currency in the FX market.
The move accelerated after the United States moved to hike policy rates aggressively to tame a record surge in inflation stemming from the impacts of the dragging pandemic and the Russia-Ukraine war.
Monetary tightening in the US has led to investors pulling their money out of Asian economies, triggering currency depreciation in most of the economies, according to a blog published on the website of the Asian Development Bank.
Sharp currency depreciation generally increases inflationary pressures through higher import prices of food and energy, worsens the current account balance, and may thus result in countries having difficulty with paying for their essential imports or servicing external debts.
Countries such as Bangladesh are facing exactly the situation predicted by the blog writers.
More and more countries — from Brazil to Southeast Asian nations — are calling for trade to be carried out in other currencies besides the US dollar, reported CNBC in April.
China is one of the most active players in this push given its dominant position in global trade right now and as the world’s second-largest economy.
Based on CNBC’s calculation of the International Monetary Fund’s data for 2022, China was the largest trading partner to 61 countries when combining both imports and exports. In comparison, the US was the largest trading partner to 30 countries.
In April, Brazilian President Luiz Inácio Lula da Silva made a state visit to Beijing where he reportedly called for reduced reliance on the US dollar for global trade.
India and Malaysia have already agreed to settle trade in the Indian rupees, said the Hindu newspaper.
In March, India said banks from 18 countries were allowed by the RBI to open special rupee vostro accounts to settle payments in Indian rupees.
During a recent visit to China, Malaysia’s Prime Minister Anwar Ibrahim was said to have suggested setting up an “Asian Monetary Fund” to reduce reliance on the US dollar.
At the ASEAN finance ministers and central banks meeting in Indonesia in March, policymakers also discussed the idea of cutting their reliance on the USD, the Japanese yen and the euro and “moving to settlements in local currencies” instead.
The dominance of the dollar has gradually declined in the last few decades. The dollar accounted for more than 70 per cent of global reserves at the turn of the century. The share declined to 58 per cent last year, IMF data showed.