Foreign trade in Indian Rupee is not feasible

BB has not yet enrolled any rupees for LC; companies say if they do, they will benefit

Trucks are seen leaving Nowapara station in Jashore, where they were loaded with goods such as onions and potatoes imported from neighboring India by train. An Indian bank recently asked its clients to negotiate with Bangladeshi traders in rupees or takas to reduce its exposure to Dhaka’s falling US dollar reserves. Photo: star/file

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Foreign trade in Indian Rupee

Trucks are seen leaving Nowapara station in Jashore, where they were loaded with goods such as onions and potatoes imported from neighboring India by train. An Indian bank recently asked its clients to negotiate with Bangladeshi traders in rupees or takas to reduce its exposure to Dhaka’s falling US dollar reserves. Photo: star/file

Businesses will not be able to use the Indian Rupee to trade with India as the Bangladesh Bank has not enlisted the currency for the settlement of export and import bills.

On September 15, the BB authorized local banks to maintain accounts with their correspondent lenders or overseas branches in Chinese yuan to help local businesses conduct foreign trade transactions using the currency of the world’s second-largest economy. .

Similar instructions will have to be issued by the central banks of Bangladesh and India to allow local businesses to settle letters of credit (LC) using rupiah and taka, according to commercial and central bank officials.

Unless the BB officially allows settlement of LCs using the currencies of both countries, this would not be possible, they said.

Currently, local businesses can pay for their exports and imports using eight foreign currencies: the US dollar, the Canadian dollar, the Australian dollar, the Singapore dollar, the euro, the British pound, the Swiss franc and the Chinese yuan.

The issue of using local currencies to settle international bills was highlighted after the State Bank of India (SBI) issued a notice on August 24 suggesting its branches not to assume exposure to US dollar or other foreign currencies in Bangladesh until further instructions. .

However, Indian rupee and taka exposures will continue as before, he said.

According to the advisory, Bangladesh is categorized as high-risk and under-cautious according to SBI’s country risk model.

He noted that the country is facing a shortage of foreign currency due to rising import bills and the weakness of the taka against the US dollar in recent times.

SBI’s office in Dhaka did not respond to the Daily Star’s request for comment.

Md Serajul Islam, spokesperson for the BB, declined to comment on the matter.

Bangladesh, which had a foreign exchange reserve of $48 billion in August 2021, saw it fall to $37.13 billion recently as import bills outpaced exports and remittances.

Its currency, the taka, depreciated by 20% against the dollar to 102.56 Tk per dollar.

If trade between the two countries were conducted in rupees and takas instead of the US greenback, the volatility of the foreign exchange market would decrease to some extent, the entrepreneurs say.

Indeed, if India and Bangladesh allow the use of their local currencies to settle bilateral trade, the need for US dollars will decrease.

India was Bangladesh’s second largest source of imports in FY 2021-22. Industrial raw materials, capital goods, cotton, yarn, fabrics and chemicals worth $16.19 billion were imported during the year.

Bangladesh exported goods worth $2 billion to the neighboring country in the same year.

“Even though not all bilateral trade can be done in taka and rupee, at least $2 billion of trade, which is equivalent to what Bangladesh exports, can be done in local currency,” Abdul Matlub Ahmad said. , President of the India-Bangladesh Chamber of Commerce and Industry.

“Experts from both countries can sit down together to find a solution so that all bilateral trade can be handled in taka and rupee.”

He argues that there will also be a positive impact on commodity prices, as buying the US dollar costs extra money in volatile global currency markets.

“Similarly, it is possible to swap the yuan and the Russian ruble to keep reserves in US dollars,” Ahmad said.

Mohammad Ali Khokon, chairman of the Bangladesh Textile Mills Association, also welcomed the idea of ​​trading in taka and rupee.

The pressure from falling US dollar reserves will ease to a large extent as Bangladesh imports a lot of raw materials and industrial goods from India,” he said.

Md Saiful Islam, Chairman of the Metropolitan Chamber of Commerce and Industry, said that if there had been no special conditions and trade had proceeded normally, taka-rupee trade would be beneficial for the two countries.

“If Indian businessmen accepted the taka and their Bangladeshi counterparts accepted the rupee, there would be no problem,” said Mohammad Hatem, executive chairman of the Bangladesh Knitwear Manufacturers and Exporters Association.

Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry, suggested holding consultations with experts so that bilateral transactions can be conducted in local currencies as soon as possible.

Ahsan H Mansur, executive director of the Bangladesh Policy Research Institute, said building a vibrant trading environment in the rupee and taka would take years, but the BB can start the process now.

The economist, however, warned that Indian companies may not initially show interest in doing foreign trade using the taka instead of the dollar.

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