Both Bangladesh and India agreed to start bilateral trade in Bangladeshi currency taka and Indian currency rupee besides the US dollar. The process is moving fast. The two countries are working towards starting commercial transactions in taka and rupee next September. But the official announcement may come even before that. Bangladesh Bank gave a hint of this.
Like many other countries in the world, Bangladesh also faced a dollar-crisis, first due to Covid and then due to the Russia-Ukraine war, which is still prevailing. On top of that, import costs were rising. Bangladesh Bank took various steps to rein in imports in order to tackle the situation. Amid this, the commerce ministers of the two countries met in a discussion held in Delhi in December last year. India made an verbal proposal to carry out bilateral trade transactions in Bangladeshi taka and Indian rupee.
Bangladesh asked India to make a formal proposal at the time. Commerce Minister Tipu Munshi told reporters upon his return from Delhi, “We could not say anything for sure about this. I said there can be discussions.” It is learned that the Ministry of Finance, Bangladesh Bank and the Ministry of Commerce have discussed the matter. Later, they informed India that the discussion could proceed.
If the proposal becomes effective, import-export trade between the two countries will be conducted through currency swap system. It economic terms, when two countries continue trade using their own currencies, avoiding hard currency such as the US dollar, this is called a 'currency swap system'.
The initiative is to materialise this time. India, however, took the initiative to trade with Bangladesh in taka and rupee once in 2013, 10 years ago. The matter did not proceed further, though.
Commerce secretary Tapan Kanti Ghosh told Prothom Alo on Sunday, "Bangladesh Bank is working on trading in rupees now. I have come to know that the matter has progressed a lot.”
According to Bangladesh Bank sources, the issue was discussed in a meeting between the governors of the two countries on 24-25 February this year in Bengaluru, India, on the sidelines of the G-20 conference. The bilateral trade in taka and rupee may be inaugurated in the meeting of the top delegates of the two countries in September, if not in June.
Bangladesh Bank executive director and spokesperson Mezbaul Haque told Prothom Alo on Sunday that the process was underway and was moving very fast. It will be inaugurated with a small ceremony when the both parties get ready. It remains to be seen if this process gains popularity. However, it is happening right now.
In response to the question of when it is happening, Mezbaul Haque said, "Earlier we had been preparing to start the process from September. Now it seems that it can be done by June or July.”
It is reported that the Reserve Bank of India (RBI), has already removed the existing legal barriers to international transactions in Indian currency. The country's finance ministry also advised trade associations and banks to trade with countries in rupees. India has already started trading in rupees with Mauritius, Iran and Sri Lanka. They want to increase the value of the rupee in the global market. The country has lately started discussions not only with Bangladesh, but also with many other countries including Russia for this.
According to Bangladesh Bank, transactions will be held through four banks of two countries each. Bangladesh's Sonali and Eastern Bank and India's State Bank of India (SBI) and ICICI Bank have started the process of opening mutual accounts according to the agreement. As part of this, the delegation of RBI and State Bank of India visit Dhaka last month and held a meeting with the managing directors of Sonali Bank and Eastern Bank, Afzal Karim and MD Ali Reza Iftekhar.
Possibility of risks
According to experts, the rupee is not recognised as a global currency. Besides, there is a risk of ending up in a one-sided currency or rupee-based exchange structure. And Bangladesh is facing a major trade deficit with India. Therefore, Bangladesh may be at risk in dealing in rupees one-sidedly. Because, once the process starts, it will not only be limited to trade of commodities, but will include transactions in travel, medical, education and so on.
A businessman involved with export-import business wishing not to be named told this correspondent on Sunday that situation like borrowing rupees from Indians banks to meet the import expenses should not arise. In that case, the burden of interest expenses will increase. Again there is an apprehension that India will increase the rate of rupee against taka arbitrarily.
According to Bangladesh Bank data, Bangladesh imported goods worth 89.16 billion US dollars in 2021-22 fiscal. Of this, the country imported goods of 13.69 billion dollars from India. Bangladesh exported goods worth 1.99 billion dollars to India in the same fiscal. The two countries had a trade of 15.68 billion dollars in total import and export for the previous fiscal.
Former president of Bangladesh-India Chamber of Commerce and Industry and vice chairman of IFAD Group, Taskeen Ahmed told Prothom Alo, "Bangladesh is not out of the current geopolitical situation. Russia, China, India—all are slowly ditching dollar. We also have to think of alternatives to the dollar. Our export of 2 billion dollars with India can be carried out with rupees, what is wrong in that? I appreciate the initiative.”
Taskeen Ahmed also said that in order to trade with India in rupees, priority should be given to essential commodities including food products.
*This report, originally published in Prothom Alo print edition, has been rewritten in English by Farjana Liakat