Bangladesh, India to trade in local currencies to cut dollar dominance

DHAKA, Bangladesh (AA): Bangladesh and India have decided to trade in their currencies, taka and rupee, respectively, to bypass the rising dollar.

The dominance of the dollar in trading has affected the promotion of regional businesses, a Bangladesh Bank (BB) official said.

The two neighbors made the decision collectively, as many countries in the region face a dollar crisis due to the ongoing Russia-Ukraine war and the pressure on dollar reserves in central banks.

Transactions in takas and rupees, apart from the dollar, are fueling hopes of reducing pressure on dollar reserves and cutting the cost of trade, according to officials in both countries.

The two countries can directly exchange import and export prices using the taka and rupee.

Decision to boost regional trade, reduce business cost

Many countries started moving to this payment system, allowing transactions in local currencies. Countries are doing this to promote bilateral or regional trade, reducing the cost of business and increase the speed of transactions, said the executive director and spokesperson for BB, Mohammed Mezbaul Haque.

“India is a major trade partner of Bangladesh. Bangladesh imports a huge quantity of goods from India. Thus, such a decision will cut the cost of business, speed up transactions, and boost regional trading,” he said.

Haque cited Singapore-India, Singapore-Malaysia, and Australia-South Africa as examples of conducting trade and transactions in local currencies.

“We have scrutinized the proposal of introducing payments in rupees offered by India and will allow the opening of an LC (Letter of Credit) in banks,” he added.

Haque also said that in traditional trading, the currency has to be converted several times at different stages, and that direct taka-to-rupee transactions are likely to minimize fluctuations.

Sonali Bank and Eastern Bank in Bangladesh have started the process of opening transaction accounts at the State Bank of India and ICICI Bank to implement the decision.

Similarly, the two Indian banks are opening accounts in the two banks in Bangladesh, according to Haque, who hopes the process will begin in June.

BB said earlier that if the banks wanted to open an LC in rupees, they would be allowed, and any trader in Bangladesh who wanted to open an LC for import or export could do it.

Recently, a delegation from India went to Dhaka and spoke with Sonali Bank and Eastern Bank.

Earlier, the Reserve Bank of India issued guidelines regarding the use of rupees in international trade.