Bangladesh (Commonwealth Union)_ Bangladesh and India have made the joint decision to conduct their bilateral trade settlements using their respective national currencies, thereby overcoming the prevailing dominance of the US dollar. The reason behind this move, as revealed by sources from the Bangladesh Bank, is due to the foreign currency liquidity challenges faced by Bangladesh, which have been obstructing the smooth flow of imports into the country.
As a sign of departure from the prevailing influence exerted by the US dollar, the governments of Bangladesh and India have chosen to forge ahead with conducting their trade settlements in their own national currencies. Local sources indicate that the underlying objective of this decision is to safeguard the import flow into Bangladesh, which has been negatively impacted by liquidity issues arising from the Russia-Ukraine conflict.
Further, this strategic shift toward favoring the Indian rupee and Bangladeshi taka is also expected to yield cost savings by eliminating various expenses associated with the use of the US dollar. Mezbaul Haque, the executive director of the Bangladesh Bank, highlighted the significance of India as a major trade partner, with Bangladesh importing a substantial volume of goods from its neighboring country. Haque also believes that this decision will ultimately reduce business costs, expedite transactions, and bolster regional trade. According to the Bangladesh Bank, Bangladesh currently imports goods worth nearly $14 billion from India, while its exports to India amount to only around $2 billion.
As the agreement takes effect, Bangladesh will be able to pay for its imports from India in rupees, but only up to the value of its exports to India. Despite this limitation, Haque emphasized the importance of this agreement and its potential long-term benefits for both countries. According to him, Bangladesh, being reliant on imports, is constantly striving to address the trade gap, and given India’s status as a major trade partner, this decision holds significant promise. Haque anticipates that the implementation process will commence in June, as banks in both countries are already in the process of establishing transaction accounts with their respective counterparts to facilitate these settlements. One of the advantages of this approach is the reduction in costs achieved by eliminating the need for multiple currency conversions in traditional settlement processes.
In its latest foreign trade policy guidance, implemented on April 1, the Reserve Bank of India introduced this form of settlement, enabling countries facing a shortage of dollars to pay for imports in Indian rupees. Recent times have witnessed other countries also moving away from the US dollar for the settlement of their bilateral trade transactions. For instance, Argentina has opted to pay for Chinese imports using the Chinese yuan to protect its plummeting dollar reserves. Brazil has already completed its first transaction with China using the yuan, while the BRICS nations are set to discuss the potential introduction of a bloc-wide currency as an alternative to the US dollar.
