Bangladesh Bangladesh to try alternative channels to trade with sanctions-hit Russia: Finance Minister

[Isa Khan]

Finance Minister AHM Mustafa Kamal has said that Bangladesh will pursue alternative channels like currency swap to overcome any problem in trading with Russia, hit by US-led sanctions following its invasion of Ukraine.

"We don't think, the war will be long. If so, we will then think of alternative arrangements", he told reporters after the two consecutive meetings of cabinet committee on economic affairs (CCEA) and cabinet committee on public purchase (CCPP) on Thursday (3 March).

The CCPP approved a total of 12 procurement proposals including the import of 30,000 metric tonnes MOP fertiliser by Bangladesh Agriculture Development Corporation (BADC) from Russia's JSC Foreign Economic Corporation "Prodintorg" at Tk150.21 crore.

The finance minister was asked about anti-Russia sanctions imposed by the European Union and some other Western countries and its backing payment through SWIFT system. So, whether Bangladesh will get its supply from Russia in time and what Bangladesh measures Dhaka will take if the payment system through SWIFT is obstructed under the current situation.

Replying to the question, Kamal said believed the war will stop soon.

"From that point of view, we are considering it. Side by side, we keep the safety net measures as well".

He said the government is also considering the alternative sources.

"If we are not able to pay to Russia due to the SWIFT's embargo, we have to take alternative measures through currency swap".

He said many ways will come out. "But we want the war to stop for the sake of humanity.

Kamal said the good relation between Russia and Bangladesh is undeniable.

He noted that Bangladesh's import of the fertiliser from Russia is not new.

"We have been importing this item for long. This time we're also trying to continue the import the item. If they fail to send the item, we will definitely find out alternative sources", he said adding,

"Until that we have continue with our current position."

Bangladesh to try alternative channels to trade with sanctions-hit Russia: Finance Minister

Finance Minister AHM Mustafa Kamal has said that Bangladesh will pursue alternative channels like currency swap to overcome any problem in trading with Russia, hit by US-led sanctions following its invasion of Ukraine. "We don't think, the war will be long.

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[Isa Khan]

A man in Springfield, Missouri of the United States exchanged a carton of eggs for two double rolls of toilet paper in March in 2020 during the first wave of Covid-19 that forced people to stay indoors, kept stores shut and broke supply chains. The barter trade of the middle age got a new life during that unprecedented period in the US.

That was a pandemic time call. Exactly after two years, it is March again and it is now wartime that challenged global supply chains in different ways and brought barter trade to the fore as an option not person-to-person, but state-to-state.

Such a proposal has just come from Bangladesh's embassy in Moscow.

In a report to the commerce ministry on 14 March, the embassy has suggested that the government export medicines and potatoes to Russia in exchange for importing food grains, such as wheat, fertilisers and edible oil through government-to-government bartering or currency swap by avoiding Russia's removal from SWIFT, an international payment system.

It also advised the government of continuing export-import activities privately in Chinese currency by using Bangladesh's corresponding accounts with Chinese banks if the sanctions on Russia continue, especially its exclusion from SWIFT, according to the report.

"Several banks in Bangladesh may have corresponding accounts in Chinese currency with Chinese banks, which may be used to facilitate export proceedings to Russia. China would be the more convenient choice having land connections with Russia," said Molla Saleheen Shiraj, commercial counsellor of Bangladesh in Moscow.

But it is only possible between exporters and importers who have been in business for a long term and have that confidence. It is very difficult for new and small exporters, he added.

Some of the potential ways suggested by Bangladesh's trade diplomat go in line with some other countries that are exploring channels for trade and financial transactions with Russia, which has been under a barrage of sanctions from the West since its attack on Ukraine. Moscow's allies in the BRICS group – Brazil, India and China – may consider a parallel financial system as the US and Europe have dropped big Russian banks from the main global payments system SWIFT, reports Reuters.

Chinese businesses and banks are increasingly settling transactions with Russia in yuan.

India is moving with its plan to get Russian banks and companies to open rupee accounts for trade settlement as part of a barter system.

"Barter transactions may be possible for food grains and edible oil from Russia and potatoes and medicines from Bangladesh," the Moscow-based commercial counsellor said in his letter to the commerce secretary, stating that 30% of India's $10 billion bilateral trade with Russia were settled in their national currencies – rupee and rouble – under state-to-state arrangements for defence and energy procurement.

"But other imports through private importers to Bangladesh will be hindered significantly," Molla Saleheen Shiraj pointed out. Bangladesh exports to Russia amounted to $665 million in the fiscal 2020-21, while imports totalled $482 million.

In the last seven (July-January) months of FY22, Bangladesh's exports to Russia amounted to $459 million, which was 43.28% higher than in the same period of FY21.

Bangladesh mainly imports wheat, fertilisers, edible oil, chemicals, and machineries from Russia. Wheat and fertilisers are often imported on a government-to-government basis and this procurement may be done in alternative ways – currency swap or barter amid the SWIFT ban, the Bangladesh embassy said.

Barter transactions may be possible for food grains and edible oil from Russia while potatoes and medicines from Bangladesh. But other imports through private importers to Bangladesh will be hindered significantly, it pointed out.

Bangladesh's main exportable items are RMG, shrimps, agri products, tobacco, jute and jute goods, leather and leather goods, footwear, light engineering, while its imports include wheat, machinery, metal and metal products, chemicals, minerals products, fertilisers, and edible oil.

The report said if the sanctions remain in force for a long period of time there are possibilities of hyper-inflation and economic turmoil, which will have a deep impact on bilateral trade with Bangladesh. Exports from Bangladesh are likely to fall drastically this time because of the SWIFT ban.

Only those RMG exporters who export to Russia through third countries, such as Turkey, Poland, Germany, Hong Kong, may get payments from export proceedings this time but they will be unlikely to continue exporting to the country, it added.

The same condition is applicable for other Bangladeshi major export items, such as jute, shrimp and tobacco.

A window of opportunities

The Bangladesh embassy said there could be some opportunities when Russia feels isolated from the West and likely to strengthen business ties with other regions, which it does not consider unfriendly. At the same time, Moscow will also want to open alternative sources for various products to the Russian market.

Bangladesh can seize the moment and proceed with its interest tactfully so that it can gain some additional mileage without annoying the western countries. The ultimate goal would be to have a signing free trade agreement with the Eurasian Economic Union led by Russia, it added.

"It seems that it takes time to sign an FTA under normal circumstances but now is the time for us to push it forward," the commercial counsellor added.

High potential for pharmaceuticals

Since generic drugs hold the largest market share, 64% in the Russian market, Bangladesh has a high potential to capture the market. It is also expected that regional markets outside Moscow and big cities are of high potential, considering cheaper prices Bangladesh may offer.

The embassy said medicines can be bartered against food grains, fertilisers from Russia under G2G basis, which will ensure faster market access.

Bangladesh Embassy in Moscow suggests barter trade amid SWIFT ban

A man in Springfield, Missouri of the United States exchanged a carton of eggs for two double rolls of toilet paper in March in 2020 during the first wave of Covid-19 that forced people to stay indoors, kept stores shut and broke supply chains. The barter trade of the middle age got a new life...

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[Isa Khan]

Bangladeshi banks are looking for Chinese payment channels to settle transactions with Russian banks that were removed from the SWIFT system to remedy difficulties faced by importers and exporters after Western sanctions following Russia's attack on Ukraine.

Businesses are persuading banks to shift payment settlement with Russian banks through China.

In this process, Cross-Border Interbank Payment System (CIPS), the rails on which Chinese banks transfer and clear yuan-denominated payments around the world, will be used, said bankers.

When the transactions will be done through China, the cheque clearing will be yuan-denominated instead of the dollar.

In this case, payment will be made from Bangladeshi bank's Nostro account in China.

A Nostro account is a bank account that a bank holds with a foreign bank in the currency of the country where the funds are held.

Currently, a few banks have Nostro accounts with China but those are not used for payment as 99% of foreign transactions are done in dollars.

In the current practice, cheque clearing is held in New York at dollar-denominations through SWIFT system and payment is made from Bangladeshi Bank's Nostro account held in the US.

As some Russian banks were barred from the SWIFT system, there is no way for banks to settle dollar-denominated paymenta.

One business group is going to use the Chinese payment channel for export from Russia through Bangladeshi private lender Bank Asia.

Talking with The Business Standard, Md Arfan Ali, managing director of Bank Asia, said customers want to shift payment settlement in China to avoid communication difficulties with Russian banks.

He, also the chairperson of SWIFT user communities in Bangladesh, said one exporter of his bank is going to open an LC (Letter of Credit) with a Chinese bank to settle payments with Russian banks.

In this case, the payment will be of yuan which will be made from Bank Asia's Nostro account in China, he said.

The cheque clearing will be in yuan but the customer wants to receive the proceeds in dollars to avoid exchange rate risk. In this case, the Chinese bank will take the exchange rate risk in exchange for a commission.

The process will increase costs for businesses but customers can agree to pay extra charge to avoid future payment risk amid the ongoing uncertainty due to the Russia-Ukraine crisis, he added.

Soon after the announcement of the US administration about cutting some Russian banks from the SWIFT system, Javier Perez-Tasso, CEO of SWIFT noticed SWIFT user communities across the world, including Bangladesh, willing to implement the sanction.

According to the SWIFT notice, three Russian financial institutions will be disconnected from the payment system from 11 March and three Belarus banks from 20 March.

Following the SWIFT notice, banks moved for alternative options of payment settlement.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said banks are looking for alternative payment channels and reviewing the Chinese payment channel to understand how it will work.

So far, the US and its allies have targeted 10 of Russia's biggest financial institutions. The Biden administration announced to block Russia's largest bank, Sberbank, VTB, the second-largest bank, and three other financial institutions from accessing the US financial system.

The impact of cutting Russia off from the SWIFT system, however, is little for Bangladesh as most buyers are global and make payments with Russia through third countries like Singapore or Dubai, said a senior executive of the Bangladesh Bank.

Citing an instance, he said global clothing buyer H&M accounted for 90% of exports from Bangladesh for Russia and this buyer makes payments through a third country.

Bangladesh received export payment from Moscow-based company Alpha group on Monday, he said.

He said that big Russian financial institutions came under sanctions but in the case of Bangladesh most payments are held with small banks.

Ali Reza Iftekhar, managing director of Eastern Bank and chairman of ABB (Association of Bankers Bangladesh), said his bank is receiving export payments from Russia.

He said that they are not facing any problems in payment so far, but they maintain extra caution about transactions with Russian banks to avoid risk of further sanctions.

Trade with Russia and Ukraine

Bangladesh's exports and imports with Russia have doubled over the last five years since FY17.

The total exports to the country increased to Tk4,639 crore in FY21 from Tk2,704 crore in FY17, according to the Bangladesh Bank data.

In FY21, the value of goods exported to Russia was higher than that of imported ones. The total imports amounted to Tk4,000 crore in the last fiscal year.

Textile products accounted for more than 96% of exports in FY21, while among major imported items, vegetables accounted for 75%. And, the second major item that Bangladesh imported was petroleum oil.

On the other hand, imports with Ukraine have also been increasing since FY17 with Tk2,000 crore, which more than doubled to Tk4,400 crore in FY20, according to Bangladesh Bank data.

But imports with Ukraine saw a drastic fall in FY21 by almost half to Tk2,700 crore.

Of the major imported items, vegetable items accounted for more than 93% in FY21.

Exports to Ukraine were a negligible amount of Tk144 crore in FY21, central bank data showed.

Bangladeshi banks look for Chinese payment channel to skirt Western sanctions

Businesses are persuading banks to shift payment settlement with Russian banks through China

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[Brace Yourself]

Bangladesh to try ‘alternative measures’ for Russia trade amid sanctions
04 March 2022

• Russia’s invasion of Ukraine followed by host of measures to cut Moscow off from world’s financial arteries
• Moscow one of Dhaka’s main trading partners, developing Bangladesh’s first nuclear power plant

DHAKA: The Bangladeshi government was likely to continue trade with Moscow, experts said on Friday, after Dhaka’s announcement that it would try “alternative measures” in the face of international sanctions following Russia’s invasion of Ukraine.
Russia is one of Bangladesh’s main trading partners and its biggest supplier of wheat and fertilizer. It also has a major presence in the country’s energy sector, and is developing its first nuclear power plant, at Rooppur.
Russia’s multipronged assault on Ukrainian territory, which began on Feb. 24, has been followed by a host of measures to cut Moscow off from the world’s financial arteries, including banning some of its banks from the Swift payment system that is key for the transaction of money worldwide.
Bangladeshi Finance Minister Mustafa Kamal told reporters on Thursday that while Dhaka wanted the war to stop, it would “have to take alternative measures through currency swap” if it was not able to pay Russia due to the Swift ban.
In a currency swap, countries exchange their local currency against any third currency, except the US dollar.
Faruq Mainuddin, executive committee chairman of Brac Bank, one of Bangladesh’s key banks for small- and medium-sized businesses, told Arab News that Russia was a big market that Bangladesh “can’t afford to lose.”
“In this case currency swap can be a suitable option for us,” he said. “If the economic sanctions on Russia continue for a longer period, Bangladesh may resort to the Chinese currency, yuan, for continuing trade with Russia.”
Both Bangladesh and China were among the countries that abstained from voting when the UN General Assembly on Wednesday overwhelmingly demanded that Moscow stop fighting and withdraw its military forces from Ukraine.
Mainuddin said that with alternative options Bangladesh would, however, incur higher trading costs as “no other currency has a stable rate in international markets other than US dollars.”
“Businesses will suffer if they are forced to switch over to other currencies,” he added.
Zahid Hussain, former lead economist of the World Bank in Dhaka, told Arab News that the situation was “very complicated” for Bangladesh.
“At present there are seven Russian banks which came under the economic sanctions and were barred from Swift banking channels. But there are 300 more banks in Russia. We may consider initiating transactions with these banks,” he said.
“Our finance ministry should initiate strong monitoring and analysis of the situation to calculate the costs of doing international transactions with Russia amid these sanctions.”
He pointed out that sanctions would also affect the construction of the Rooppur nuclear plant, a $13.5 billion project financed mostly by Russia which is scheduled to be fully operational by 2024.
“We are yet to receive many (items of) heavy equipment from Russia for the RNPP,” he said. “Even if Russia can prepare the equipment, I don’t know if they can transport it to Bangladesh.”

Bangladesh to try ‘alternative measures’ for Russia trade amid sanctions

DHAKA: The Bangladeshi government was likely to continue trade with Moscow, experts said on Friday, after Dhaka’s announcement that it would try “alternative measures” in the face of international sanctions following Russia’s invasion of Ukraine. Russia is one of Bangladesh’s main trading...

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[Isa Khan]

Russia has proposed a direct payment system bypassing the global standard SWIFT to settle the dues for Rooppur nuclear power plant as the Soviet nation looks to navigate the sanctions from the West following the Ukraine war.

SWIFT is the messaging system used by financial institutions globally to convey instructions to carry out tens of millions of transactions each day. Most Russian banks are banned from SWIFT, effectively cutting the nation off from the global payment network.

This has left Russia in a blind spot over its payment from Bangladesh for the $13 billion Rooppur nuclear power plant.

The issue was discussed at length at the fourth meeting of the Russia-Bangladesh commission, which concluded yesterday.

The existing Russian-Bangladeshi interbank infrastructure is not sufficiently robust to service all mutual foreign trade settlements without the involvement of intermediary banks from third countries, said the Bank of Russia in a letter to Bangladesh Bank Governor Abdur Rouf Talukder ahead of the three-day virtual meeting.

The current situation sets special requirements for the financial infrastructure in use: it should be resilient and independent from third parties, and it should be able to fully ensure uninterrupted and reliable settlements under trade and economic activities, the letter read.

"In view of this, we would be grateful if you could support and facilitate the establishment of direct correspondent relations between our countries' banks."

Should BB agree to this, the Bank of Russia sought a list of interested Bangladeshi banks.

The letter also mentioned a currency swap agreement and setting up a currency clearing scheme to settle payments between the two countries.

Under the proposed arrangement by the BB, Bangladesh would deposit money in a Chinese bank account of the Bank of Russia. But Russia has been insisting on direct payment in roubles.

It appears Russia is softening its stance on this: Bank of Russia wanted to know the procedure for determining the conversion rate under the proposed currency clearing scheme and the anticipated timeframe by which it can be made operational.

It also sought the BB's opinion on connecting to the Bank of Russia Financial Messaging System (SPFS) for transferring financial information as well as the anticipated timeframe and method of connection.

The Bank of Russia also sought the central bank's opinion on the possibility of using Russian roubles to settle the foreign trade balance. It wanted to know the BB's experience as a member of the Asian Clearing Union.

At the three-day meeting, a host of issues ranging from clearing mechanism for exports and imports to payment for the Rooppur nuclear power plant, from the import of liquefied natural gas to wheat from Russia were discussed among others.

"They gave us some proposals and we gave them some," Uttam Kumar Karmaker, additional secretary of the Economic Relations Division, told The Daily Star yesterday.

A mission will come from Russia next to further the talks and arrive at a decision.

"The issues are too important to be resolved over a virtual meeting. We did not arrive at any decision at the meeting," he added.

The security of SPFS is being assessed as SWIFT is said to be watertight, said another ERD official on the condition of anonymity as he is not authorised to speak with media.

"We have some requirements. Russia has sent us a letter over Rooppur payment and we are assessing the various modes as Russia has a lot of sanctions on it," said Md. Mezbaul Haque, BB spokesman.

Rooppur Project: Russia proposes payment in rouble

Russia has proposed a direct payment system bypassing the global standard SWIFT to settle the dues for Rooppur nuclear power plant as the Soviet nation looks to navigate the sanctions from the West following the Ukraine war.

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