Bangladeshi businesses engaged in trade with India now have the option to settle their transactions in a currency other than the US dollar as the two neighbouring countries will be able to commence transactions in the rupee from today (11 July).
Currently, Bangladesh conducts its external trade exclusively in the American greenback. However, over the past 12 months, the appreciation of the US dollar against the taka by approximately 25% has significantly impacted foreign exchange reserves, which have shrunk by a third since the onset of the Russia-Ukraine war.
"We are providing an option to businesses that wish to conduct trade with India in rupee. This will gradually alleviate the pressure on the US dollar, which has made it challenging for many businesses to import," said Ali Reza Iftekhar, managing director of Eastern Bank Limited, one of the two local banks authorised to settle import bills from India in rupee. The other is the state-owned Sonali Bank.
Under the new arrangement, banks will be able to settle the import liability equivalent to the amount of rupees received from export proceeds. In the fiscal 2021-22, bilateral trade between Bangladesh and India amounted to about $16 billion, with Bangladesh's exports reaching only $2 billion. According to recent data, more than 19% of the country's total imports came from India until March of the fiscal 2022-23.
Considering the present bilateral trade figures, it is evident that Bangladeshi businesses can settle their import bills with Indian suppliers in rupees, up to a maximum value of $2 billion. The transaction in rupee will increase if Bangladesh can ship more products to India, bankers said.
However, not all businessmen may be interested in the rupee settlement, as it is not mandatory for them, clarified Iftekhar. He stated, "We will announce on Tuesday that we are ready for trade in rupees. Now we need to raise awareness among businesses about this issue so that they feel comfortable trading in a new currency."
Iftekhar said trading in rupees may save Tk1 per dollar in terms of exchange rate losses. Regarding the taka-rupee exchange rate, the top banker stated that the US dollar will serve as the reference rate. This means that the rate will be determined based on the US dollar-rupee and US dollar-taka exchange rates.
According to him, they have applied for transactions in both rupees and taka, and the Reserve Bank of India has approved it. He mentioned that initially, the transactions will be conducted in rupees only for small amounts, with the volume gradually increasing in phases. Furthermore, trading in taka will be introduced later, he informed TBS.
Afzal Karim, the managing director of Sonali Bank, said all concerned parties, including traders, will receive detailed information about the matter. He noted that transactions may not take place on the opening day, as those interested in availing of the facility need to make necessary preparations.
Karim mentioned that they have completed all the required procedures, such as opening the Relationship Management Application (RMA) with the State Bank of India and the Industrial Credit and Investment Corporation of India (ICICI) bank. The RMA is necessary to open import letters of credit (LCs), he added.
He said a dedicated desk has been established for traders, which will provide all kinds of assistance to importers or exporters wishing to trade in rupees.
Both top bankers mentioned that if there is a shortage of rupees, they can obtain loans from the State Bank of India (SBI) and ICICI under a credit line, but these loans are short-term.
Abdul Matlub Ahmad, the president of the India-Bangladesh Chamber of Commerce and Industry, emphasised that Bangladesh's trade with India in rupees will benefit small businesses the most, as they struggle to obtain the greenback. He added that they will also benefit from saving on exchange rate losses.
The move to trade in rupees follows the Reserve Bank of India's decision last year to allow the settlement of international trade in the Indian currency.
Since the war began in February 2022, Bangladesh has been grappling with settling import bills and opening new LCs for imports due to a dollar crisis. The country's forex reserves have decreased by more than a third since then, reaching below $30 billion, which is a seven-year low.
In February 2022, the value of Bangladesh's taka fell to Tk109 for LC payments, compared to Tk86 per US dollar.
Industry insiders stated that LCs can be opened in five currencies recognised by the International Monetary Fund (IMF) and Canadian dollars, from any bank branch involved in foreign exchange transactions. No separate permission from any bank is required for this. The five currencies recognised by the IMF are the US dollar, euro, British pound, Japanese yen, and Chinese yuan. Although China's currency has been recognised by the IMF since 2016, the Bangladesh Bank allowed opening of LCs in yuan last September. Since 2018, the opening of a clearing account with the Bangladesh Bank in yuan has been permitted. However, there has not been much interest in trading in other currencies, including the yuan, outside of the dollar.
US Dollar to serve as the reference rate for taka-rupee exchange rate
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Bangladesh and India are gearing up to sign a Memorandum of Understanding (MoU) that will ensure mutual cooperation by both parties in conducting scientific research in the Bay of Bengal and the Indian Ocean, as well as facilitate an exchange of scientific and technical data and samples.
According to the draft agreement seen by The Business Standard, areas of mutual cooperation in research will include monsoon and climate change, air-sea interaction, ocean processes, circulation and dynamics, biogeochemistry, ecosystem characteristics and marine biology, sedimentology and marine sedimentary processes, marine pollution, and paleo-oceanography and tectonics.
Bangladesh has already finalised the draft agreement based on the one sent by India at an inter-ministerial meeting held on 9 April.
The Bangladesh Oceanographic Research Institute (BORI) and India's National Institute of Oceanography (NIO), will sign the MoU.
When asked about the progress in the MoU signing process with India, BORI Director General (additional charge) Md Moinul Islam Titas told The Business Standard, "Efforts are underway to finalise the draft…But it is not possible to say at what stage the process is now, without seeing the file."
In its draft, India proposed conducting research in the entire Bay of Bengal – "the open Bay of Bengal" as the draft said, but Bangladesh did not agree to it.
Bangladesh decided to drop the term "open Bay of Bengal" and, in addition, included "any area within the Indian Ocean mutually agreed by the two parties" in the draft instead of "Indian Ocean" as the geographical area of investigation.
Bangladesh agrees to joint research only in those areas of both oceans that the two countries will agree upon.
The draft also says data and samples collected during the research can be exchanged between the two countries but cannot be handed over to a third party and cannot be used for commercial purposes. Any unutilised samples have to be sent back to the coordinators identified in the agreement.
Both parties shall take all measures to protect the secrecy of and avoid disclosure and unauthorised use of the information which is confidential as agreed by both parties and outside the public domain.
The exchange of biological materials, if any, shall be governed by the applicable provisions of the Indian Biodiversity Act 2002 and Bangladesh Biodiversity Act 2017 or equivalent legislative provisions of the respective countries, the draft MoU said.
The two countries will jointly bear the cost of the research and if any publication or document is created as a result of the research, it will be owned by the two countries.
Officials of Bangladesh Oceanographic Research Institute said the institute was established in 2018 for the purpose of oceanographic research, application of research findings and related work.
The BORI Act 2015 allows the signing of MoUs between various domestic and foreign institutions and universities to boost cooperation in oceanography.
After the establishment of the Bangladesh Oceanographic Research Institute, four Bangladeshi scientists and officials visited NIO in Goa, India, and the National Institute of Ocean Technology in Chennai.
Later, the Director of NIO proposed a Memorandum of Understanding with the Bangladesh Oceanographic Research Institute and sent a draft to that end.
Bangladesh finalised the draft and sent it to India in September 2019. In November of that year, the Indian High Commission in Dhaka changed the draft MoU and added some sub-articles before handing it back to the Bangladesh government.
A technical committee of the government reviewed the draft sent by India and decided that the inputs incorporated in the latest draft sent by India were inconsistent with the capacity and experience of Bangladesh Oceanographic Research Institute as a new institution. The committee agreed to proceed with the previous draft finalised in September 2019.
The draft finalised in 2019 was once again sent to India through the Ministry of Foreign Affairs. Later the Indian side agreed to it with some comments.
The Ministry of Science and Technology has sent the draft to the Ministry of Finance, seeking the opinion of the Finance Division on this matter.
Areas of mutual cooperation in research will include monsoon and climate change, air-sea interaction, ocean processes, circulation and dynamics, biogeochemistry, ecosystem characteristics and marine biology, sedimentology and marine sedimentary processes, marine pollution, and paleo-oceanography...
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if you guys are still paranoid then it's fine by me.even if someone protests they ain't gonna even take it seriously.
