India and Bangladesh Embrace National Currencies for Trade Settlements
In a move to tackle liquidity
challenges and ensure a smooth flow of imports, India and Bangladesh have
decided to conduct their bilateral trade settlements using their respective national
currencies instead of relying on the US dollar. This move marks a significant
departure from the dominance of the dollar and aims to strengthen regional
trade ties.
Indian Rupees and Bangladeshi Takas to Take Center Stage in Bilateral Trade
The decision holds great potential for
cutting costs associated with currency exchange as Indian rupees and
Bangladeshi takas to take center stage. Mezbaul Haque, the executive director
of the Bangladesh Bank, expressed enthusiasm for the strategic shift,
highlighting the benefits for both countries. He emphasized that since India is
a major trade partner of Bangladesh and a significant source of imports,
conducting trade settlements in national currencies would reduce business
costs, accelerate transactions, and foster regional trading.
With Bangladesh importing nearly USD
14 billion worth of goods from India while exporting only around USD 2 billion,
this agreement aims to bridge the trade gap between the two countries. While
Bangladesh can only pay for Indian imports in the rupee equivalent of what they
export to India, Haque underlined the long-term advantages of this new
arrangement.
New Approach Set to Begin in June
The implementation of this new
approach is set to begin in June, with banks in both countries already
establishing transacting accounts with their counterparts to facilitate
seamless settlements. The move is expected to generate major cost savings by bypassing
the multiple currency conversions inherent in traditional settlements.
The Reserve Bank of India incorporated
this form of settlement in its latest foreign trade policy guidance, effective
April 1, enabling countries facing dollar constraints to pay for imports in
Indian rupees. Following suit, other nations have also explored alternatives to
the US dollar for settling bilateral trade transactions. For instance,
Argentina opted to pay for Chinese imports using the Chinese yuan to safeguard
its dwindling dollar reserves, while Brazil completed its first yuan-based
settlement with China. Moreover, BRICS nations are currently discussing the
potential issuance of a bloc-wide currency as a substitute for the US dollar.
The decision of India and Bangladesh
to trade in national currencies paves the way for a more independent and
mutually beneficial economic relationship.
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