Bangladesh is all set to settle trade with India in Rupee from Tuesday, a move to cut their reliance on the American currency, which was involved in nearly 90 per cent of global forex transactions in 2022.
Bangladesh Bank and the Indian High Commission are expected to announce the news regarding the Indian currency at an event at Le Meridien Hotel in Dhaka tomorrow.The central bank governor and the Indian high commissioner will also join, a Bangladesh Bank (BB) official said.
The BB has already given permission to three banks – Sonali Bank, Eastern Bank and State Bank of India (SBI) in Bangladesh – to open nostro accounts with their counterparts in the neighbouring country.
The nostro account is an account that a bank holds with a foreign bank in the currency of the country where the funds are held. It is used to facilitate foreign exchange and international trade transactions involving foreign currencies.
This new move will open the letters of credit in the rupee to source a portion of the products from the neighbouring country and thus cutting the use of the US dollar to some extent, according to The Daily Star.
The government has toughened import rules due to the shortage of American greenback, driven by higher import bills, with a view to stopping further depletion of the foreign currency reserve, which has fallen by nearly 30 per cent from a year ago.
The private commercial bank, Eastern Bank and the country office of SBI have already opened nostro accounts with Indian ICICI Bank and SBI, the BB official said, adding that state-run Sonali Bank will open the account in the quickest possible time.
Both the BB and the Reserve Bank of India (the central bank of India) have given permission to the two Indian banks to start settling the bilateral trade in the Indian rupee (INR), he added.
The new arrangement will allow Bangladesh to perform foreign trade with India to the tune of USD 2 billion, equivalent to its current annual export receipts from the country. Last month, BB Governor Abdur Rouf Talukder said that if the trades through the unofficial channel are added then the imports can go up to USD 27 billion, as per The Daily Star.
As per plans, ICICI Bank and SBI will settle imports with Bangladesh in the rupee. And the amount will be deposited with the Bangladeshi banks’ nostro accounts with the two.
In the second phase, the Bangladeshi banks will settle the import payments on behalf of the local importers by using the rupee deposited with the counterparts.
The dominance of the US Dollar is declining in the last few decades. At the ASEAN finance ministers and central banks meeting in Indonesia in March, policymakers also discussed the idea of cutting their reliance on the USD, the Japanese yen and the euro and “moving to settlements in local currencies” instead.
The dollar accounted for more than 70 per cent of global reserves at the turn of the century. The share declined to 59 per cent in 2011 and 58 per cent last year, International Monetary Fund data showed.