De-dollarisation: Bangladesh dumps US currency, becomes 19th country to trade with India in rupees

Dhaka: Bangladesh has become the 19th nation to settle bi-lateral trade with India in Indian rupees. Both the countries were in talks for months to give up dollar and use their local currencies for clearing transactions.

To initiate settling cross-border trade with India, two of the Bangladesh’s banks – Sonali Bank and Eastern Bank Limited (EBL) – will open vostro accounts in two Indian lenders – State Bank of India (SBI) and ICICI Bank.

Similar accounts will be opened by these two Indian banks in the two Bangladeshi banks.

The transaction between the two countries will take place in taka-rupees without the inclusion of any third currency.

Trade in INR-Taka will reduce pressure

“Bilateral trade with India in taka and INR will reduce pressure on the US dollar. Both countries will benefit from this,” a report by The Business Standard, Dhaka, quoted Md Afzal Karim, CEO and managing director of Sonali Bank Limited, as saying.

A delegation of India’s central bank - Reserve Bank of India (RBI) - and SBI visited Bangladesh’s capital Dhaka in April to discuss and finalise settling trade in INR and taka.

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On 11 April, the Indian delegation of RBI and SBI met with the managing director of EBL and Sonali Bank and the two sides discussed payment methods for commercial transactions in taka and rupees, the report said.

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Businesses in Bangladesh welcome trade in INR

Bangladesh Bank Executive Director and Spokesperson Md Mezbaul Haque said businesses in his country have welcomed the decision to settle trade with India in INR and taka as “they think that the arrangement will promote trade and reduce pressure on forex reserves.”

The report mentioned Haque further saying that several months back the RBI gave instructions regarding direct transactions in rupees. “There are some procedural issues in making such transactions,” he added.

India-Bangladesh trade

The report said, in the last fiscal year, Bangladesh imports from India was around $13.69 billion. Of which $2 billion will be traded in INR, while the rest will be paid in US dollars.

Meanwhile, exports from Bangladesh to India were about $2 billion and transactions regarding these will be made in Indian rupees and taka.

“Once we get the approval of the central banks of both countries, we will inform the customers that import and export with India can be done directly through rupees. Interested traders can then directly open LCs in rupees. It will reduce the cost of traders. Again, the additional pressure caused by the demand for dollars will ease,” the report quoted Ali Reza Iftekhar, Managing Director of EBL, as saying.

President of Bangladesh Chamber of Industries Anwar-ul Alam Chowdhury Parvez lauded the decision to settle bi-lateral trade with India in taka and rupees.

“The exchange rate of rupee is steady compared to taka. So our currency needs to be more stable before starting transactions in rupees,” the report quoted him as saying.

Bangladesh has been working on signing a currency swap agreement with Russia. Also, China has offered a currency swap with Bangladesh and the proposal is being reviewed by Sheikh Hasina-led government.

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Earlier this week, Bangladesh said that it will settle payment for a nuclear plant to Russia in Chinese yuan.

Countries trading in INR

Before Bangladesh, 18 countries have started settling overseas trade with India in INR. These countries are – Russia, Singapore, Sri Lanka, Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Seychelles, Tanzania, Uganda and the United Kingdom.

Also Read: Rupee races to replace dollar as UAE to join 18 others to settle trade in INR

De-dollarization

After the US and European Union nations imposed sanction on Russia last year following its invasion of Ukraine, several countries have given up trade in dollar.

The US currency, which has been a global reserve currency post World War second, appears to be losing the hegemony.

Iran has abandoned dollar trade with China and Russia. Saudi Arabia, a key OPEC member, said it will completely give up PetroDollar and will start accepting PetroYuan.

French President Emmanuel Macron last week said Europe should reduce its reliance on the US dollar.

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Brazil President Luiz Inacio Lula da Silva also on his first state visit to China since taking office in January, last week, had called for the BRICS nations to give up US dollar and come up with their own alternative currency to settle cross-border trade. His comments came days after the Brazilian government gave up dollar as an intermediary and announced a deal to trade in local currency with China.

China too has been actively trying to present yuan as an alternative to US dollar. Russia too has been largely using yuan in international trade. It is also mulling launching a joint BRICS currency.

With inputs from agencies

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