In a bid to reduce the dependency on US dollar in international trade Bangladesh started trade transactions in Indian Rupee on Tuesday.
The initiative is likely to save around 2 billion US dollar per year, which Bangladesh may use for other purposes.
On the other hand, a significant portion of the dollar will be saved from the informal sector, which is spent by travelers to India for different purposes, following another initiative of dual currency cards.
On the occasion, Indian High Commission and Bangladesh Bank orgaised an inaugural programme at a Dhaka hotel. Bangladesh Bank Governor Abdur Rauf Talukder and Indian High Commissioner Pranay Verma were present on the occasion.
The central bank governor said, “Discussion between India and Bangladesh has been going on for a long time in this regard; businessmen have been demanding this for a long time.”
He said that India is one of the biggest trading partner of Bangladesh. Bangladesh imports $14 billion worth of goods from India and exports $2 billion worth of goods to the neighbouring country. Transaction costs during trade with India will be reduced with the introduction of the taka-rupee dual currency card, he added.
The Indian high commissioner hoped that both countries would benefit from this approach.
Afzal Karim, Managing Director (MD) of Sonali Bank; Ali Reza Iftekhar, MD of Eastern Bank; Sheikh Md Salimullah, Secretary to the Financial Institutions Division of the Ministry of Finance, also spoke on the occasion.
BIDA Chairman Lokman Hossain Mia; Commerce Secretary Tapan Kanti Ghosh; FBCCI President Md. Jasim Uddin; India-Bangladesh Chamber President Abdul Matlub Ahmed; and BGMEA President Farooq Hasan attended the event as well.
Sonali Bank and Eastern Bank of Bangladesh and the State Bank of India and ICICI Bank of India are the banks responsible for trading in rupees between the two countries.
Bangladesh Bank Spokesperson Md Mesbaul Haque, during a press conference at the bank’s headquarters in Motijheel, informed of LCs opened on the inaugural day.
He said two Bangladeshi businesses – Tamim Agro and Shahjahan Mia – received export letters of credit (LCs) worth 28 million Indian rupees and two import LCs – Nita Company and Abdul Matlub Ahmad – worth 12 million Indian rupees were handed over by Sonali Bank, Eastern Bank of Bangladesh and State Bank of India and ICICI Bank.
Former governor of Bangladesh Bank (BB) Dr Atiur Rahman recently told media that Bangladesh's trade in Indian Rupees will start in regional trade with an alternate currency which will also incorporate Bangladesh Taka subsequently.
This will help take some pressure off the ACU payment settlement which takes place every two months, he said.
“Bangladesh exports about $2 billion to India against India exporting nearly eight times of that amount. So, our designated banks can open accounts in Indian designated banks and put export proceeds in Rupees,” he opined.
Similarly, Indian banks can open Taka accounts in Bangladesh banks to put their export proceeds in Taka to a limited extent. The rest of the payments will continue conventionally in dollar, he added.
President of India-Bangladesh Chamber of Commerce and Industry (IBCCI) Abdul Matlub Ahmad recently told Media that Bangladeshi traders incur an additional cost of 4-6 percent that will be saved by this initiative.
Again, the businessmen are uncertain to open LCs in dollars. This is because the value of the rupee against the dollar has fallen frequently over the past year, Motlub said.
But there is no such uncertainty in taka-rupee transactions. Because the value of taka has not decreased much against the rupee, he added.
At first Sonali Bank and Eastern Bank of Bangladesh and two banks of India will open LCs in Rupees.
The number of banks will increase in the coming days. As a result, traders will not have much problem. Anyone can take this opportunity. But the small businessmen will benefit more from money to rupees transactions, the business leader said.
Because many small businessmen are unable to open LCs due to the dollar crisis, the Rupee trade will give priority to small traders, he added.
BSS adds: In his speech, Adbur Rouf Talukder on Tuesday said India and Bangladesh have witnessed a significant expansion in bilateral trade over the years.
"The trade position between India and Bangladesh has seen remarkable growth, with both countries benefiting from their economic cooperation," he added.
He informed that transaction costs during trade with India will reduce with the introduction of the taka-rupee dual currency card.
"Dual currency cards are almost ready. It will be launched from September," he added.
He also said, "I met the Governor of the Reserve Bank of India, Shaktikanta Das in Bangalore. I proposed two things to him. One of them is to trade in rupee."
"There is also a mental game involved in trading in rupees. When Indians will buy goods in their own currency, they will consider it as their own. I think it will increase our trade," he added.
Pranay Verma said today's event marks the beginning of a new chapter in economic and commercial partnership of the two countries.
"With growing determination and willingness, both sides, despite the odds presented by global economic situation, have moved forward to add new momentum to our economic ties. We faced the challenge presented by the Covid pandemic, and emerged stronger from it. The current global headwinds that are affecting economies across the world, present yet another challenge. And it is very heartening, and a symbol of the resilience of our bilateral partnership, that we are yet again adapting and leveraging opportunities to take our relationship and our economies forward through this innovative arrangement. This is also a reflection of our commitment to shared growth and shared prosperity," he added.
He said, "This mechanism is a response to a long-standing demand of local businesses, and in my view, it has tremendous potential to further enhance our bilateral trade in the longer-term. This, along with the Comprehensive Economic Partnership Agreement (CEPA), for which we are going to start negotiations soon, will hopefully make our bilateral trade more robust and take it on a faster growth trajectory, just as Bangladesh makes the important economic graduation to become a developing country in 2026."