Bangladesh (Common Wealth) _ Bangladesh is preparing to join a global drive to reduce reliance on the US dollar in foreign trade settlements, as the country begins to utilize the rupee in bilateral dealings with India on July 11.
The measure may provide some relief to importers because they will be able to issue letters of credit in the rupee to source a percentage of their products from the neighboring country, reducing their reliance on the US dollar.
Due to a lack of American dollars caused by rising import expenses, the government has tightened import controls in order to prevent further depletion of the foreign currency reserve, , which has dropped by over 30% year on year. Both the Bangladesh Bank and the Indian High Commission are likely to announce the switch to Indian currency during an event on Tuesday at the Le Méridien Hotel in Dhaka.
The central bank governor and the Indian high commissioner will attend the ceremony, according to a BB official who did not want to be identified because he is not authorized to speak to the media. The Bangladesh Bank (BB) has already granted permission to three banks in Bangladesh – Sonali Bank, Eastern Bank, and State Bank of India (SBI) – to open nostro accounts with their counterparts in the neighboring country.
Eastern Bank, a private commercial bank, and SBI’s local office have already created nostro accounts with Indian banks. Indian ICICI Bank and SBI would open the account as soon as feasible, and state-run Sonali Bank will do the same. Both the BB and the Reserve Bank of India (India’s central bank) have authorized the two Indian banks to begin settling bilateral commerce in Indian rupees (INR), he said.
A nostro account is a bank’s account with a foreign bank in the currency of the nation in which the funds are held. It is used to facilitate foreign exchange operations and international trade involving foreign currencies.
The ongoing foreign exchange market crisis caused by a scarcity of US dollars has pushed the BB to settle bilateral commerce using the currency of India. The new agreement will allow Bangladesh to conduct foreign trade with India worth $2 billion, which is equal to the country’s existing annual export receipts.
Last month, BB Governor Abdur Rouf Talukder stated that Bangladesh is trying to do trade with India in the rupee up to the level provided by the country’s export profits. Bangladesh’s imports from India greatly outnumber its exports. Its exports total $2 billion, with official imports totaling $18 billion.
If trades through the unofficial channel are included, imports would rise to $27 billion, according to Talukder. ICICI Bank and SBI intend to pay imports with Bangladesh in rupees. And the funds will be transferred to the two Bangladeshi banks’ nostro accounts.
In the second phase, Bangladeshi banks will settle import payments on behalf of local importers using rupees deposited with counterparts. However, the central banker claims that the country’s reliance on the dollar will not be reduced quickly because just $2 billion will be changed to Indian rupees.
According to a blog published on the Asian Development Bank’s website, monetary tightening in the United States has caused investors to withdraw their money from Asian economies, causing currency depreciation in the majority of the economies. According to Indian media, India and Malaysia have previously agreed to settle trade in Indian rupees.
The Reserve Bank of India (RBI) announced in March that banks from eighteen countries might open special rupee vostro accounts to settle payments in Indian rupees. The dollar’s dominance has gradually faded over the previous few decades as the US’s role in global trade has dwindled.
At the turn of the century, the dollar accounted for more over 70% of global reserves. According to IMF data, the share fell to 59% in 2011 and 58% last year.
