Boosting Bilateral Commerce

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Bangladesh and India Increase bilateral trade through Rupee Trade Settlement.


Bangladesh and India launched a much-anticipated trading transaction in rupees a few days back, aiming to reduce reliance on the US dollar while strengthening regional currency and commerce. This is the first time Bangladesh has conducted bilateral trade in local currency with a country other than the United States. Bangladesh Bank Governor Abdur Rouf Talukder called the introduction of rupee-based trade settlement the “first step in a long journey.” In the presence of Indian High Commissioner, Pranay Verma, Talukder remarked, “The trade position between India and Bangladesh has seen remarkable growth, with both countries benefiting from their economic cooperation.”

The central bank governor stated that the introduction of the taka-rupee dual currency card, which is almost ready to be launched in September, will minimise transaction costs during trade with India. Bangladesh and India, on the other hand, conduct semi-formal border business in regions known as ‘border huts,’ where both currencies are exchanged on a small basis.

Officials added that under the formal agreement, trading would begin in rupees and then progressively shift to the Bangladeshi currency taka when the trade disparity between the two countries narrowed. Banks in Bangladesh and India have been granted authority to operate nostro accounts, which are accounts in another nation used for foreign currency transactions. Officials also stated that the exchange rate will be decided based on market demand, with banks participating in the process. According to the most recent official data from Dhaka, Bangladesh’s exports to India are USD 2 billion, while Bangladesh’s imports from India are USD 13.69 billion.

Several economists, however, believe that due to the trade deficit, Bangladesh may not be able to reap the benefits of the new system right now. However, the Governor of Bangladesh Bank stated that he was not only considering this USD 2 billion export because “we export and import in Indian rupees, which will have an effect on both countries’ exporters and importers.” He also added, “We can significantly boost our exports since clients in India will buy things in their own currency, treating them as their own products. It will offer a larger opportunity for us in this (Indian) industry since India is a large market”.


One of the primary advantages of this bilateral agreement is the reduction in currency exchange costs and the elimination of exchange rate risks. By dealing in the local currency, businesses on both sides can avoid the expenses associated with constant currency conversions, making transactions more efficient and cost-effective.


According to the Indian envoy, India-Bangladesh relations have changed dramatically over the last decade. Bangladesh is India’s largest South Asian trading partner and fifth largest globally. It has been observed that bilateral trade has more than doubled in the last five years. Over the last three years, the country’s exports to India have continuously exceeded USD 1 billion, and in the most recent fiscal year, they surpassed USD 2 billion for the first time. With its diverse market, India has emerged as Bangladesh’s top Asian export destination.

One of the primary advantages of this bilateral agreement is the reduction in currency exchange costs and the elimination of exchange rate risks. By dealing in the local currency, businesses on both sides can avoid the expenses associated with constant currency conversions, making transactions more efficient and cost-effective. This, in turn, can encourage more companies to engage in cross-border trade, leading to increased economic activity and growth for both countries. Furthermore, trading in INR can foster stronger bilateral trade ties between Bangladesh and India. It represents a level of trust and cooperation, indicating a commitment to fostering long-term trade relationships. The use of a common currency can also promote economic integration between the two nations, aligning their financial systems and encouraging shared economic goals and policies.

 

 

In addition to facilitating trade, conducting business in the local currency offers more straightforward payment mechanisms. Companies can settle transactions seamlessly through established banking channels, which can lead to quicker and more reliable payment processes. This convenience can attract more traders and investors to participate in bilateral trade, further boosting economic interactions. Another advantage of using INR for inter-country trade is the mitigation of currency volatility risks. Fluctuations in exchange rates can lead to uncertainty for businesses and investors. By adopting a stable local currency, businesses can hedge against these risks, providing a sense of stability in their trade transactions.

Moreover, the adoption of INR for trade can promote the development of regional value chains. Companies in both Bangladesh and India may specialise in specific aspects of production and collaborate to create finished goods. This can result in cost efficiencies and enhanced competitiveness in international markets, benefitting both nations. Nevertheless, the implementation of a single currency for trade requires careful coordination and planning between the central banks and governments of both countries. It demands robust frameworks and mechanisms to manage the potential risks and ensure a smooth transition. A thorough analysis of the benefits and drawbacks for both economies is crucial before making any decisions regarding the adoption of INR for inter-country trade. Nonetheless, if executed successfully, this move could yield significant advantages and open new avenues for growth and cooperation between Bangladesh and India.

Tamim Industries Limited Bogra has completed the first export deal in Indian rupees for Bangladesh, valued at INR 16 million. The import LC was opened by ICICI Bank in India, while the exporter’s bank is the State Bank of India’s (SBI) Bangladesh office. Md Shahjahan Ali, the chairman of Tamim Agro, has taken the export document folder from the visitors. Furthermore, the Nitol-Niloy Group is carrying out the country’s first rupee import for INR 12 million. The SBI Dhaka branch in Bangladesh has opened the import LC. The import paperwork folder was taken from the guests by Md Abul Matlub Ahmed, chairman of Nitol-Niloy Group. Sonali Bank, Eastern Bank of Bangladesh, the State Bank of India, and ICICI Bank delivered the import and export documentation.


In addition to facilitating trade, conducting business in the local currency offers more straightforward payment mechanisms. Companies can settle transactions seamlessly through established banking channels, which can lead to quicker and more reliable payment processes.


As trading kicks off in INR experts have commented that this measure aims to lessen reliance on the US dollar while also encouraging bilateral trade. The inclusion of the Bangladesh taka in trade settlements is expected to boost the two countries’ burgeoning trade. The President of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Faruque Hassan, expressed excitement about the rupee settlement, underlining the benefits it will bring to local exporters. It will first apply to imports worth USD 2 billion, but it is expected to be expanded in the future. The September launch of a dual-currency debit card will relieve pressure on the dollar in both countries. Hassan pointed out that the government has set aside BDT 10,000 crore for the import of raw materials, allowing garment producers to buy them in India using rupees. He also urged that the inconvenience of various currency conversions be reduced and that the taka should be incorporated into two-way trading in the future.

Md Fazlul Hoque, Managing Director of Knitwear Exporter Plummy Fashions Ltd, acknowledged India’s potential as a growing market for Bangladesh. He emphasised the possible advantages of settling trade in the rupee, particularly the ability to save BDT 1 per USD by avoiding several conversions. However, he expressed reservations about determining the exchange rate between the Indian rupee and the Bangladeshi taka, given the varying rates for exporters, importers, and remitters. Hoque also wondered if raw materials could be bought in rupees or taka. The transaction payment in rupees, according to Ahsan Khan Chowdhury, Chairman of Pran-RFL Group, is a remarkable move that would encourage tighter ties while eliminating wastage and currency conversion losses. He stressed the possibility it provides in the large Indian market.

The new initiative, according to MA Jabbar, Managing Director of DBL Group, a garment exporter to India, will simplify trade processes and cut currency conversion expenses, benefiting both Bangladeshi and Indian exporters and buyers. He also campaigned for taka trade settlements. The dependency on the US currency would be lessened, according to Mohammad Hatem, Executive President of the Bangladesh Knitwear Manufacturers and Exporters Association, resulting in cost reductions for firms. The Bangladesh Textile Mills Association’s President, Mohammad Ali Khokon, stated that while the initial trade volume settled in rupees may reach USD 2 billion, the balance of trade favours India, which exports goods worth more than USD 12 billion to Bangladesh annually.

The development of a dual-currency card, which would decrease exchange rate losses connected with dollar conversions, was hailed by Abdul Matlub Ahmad, President of the India-Bangladesh Chamber of Commerce & Industry. He underlined its utility for travellers from both nations, implying that a taka-rupee card would make transactions easier.

The implementation of a single currency for trade requires careful coordination and planning between the central banks and governments of both countries. It demands robust frameworks and mechanisms to manage the potential risks and ensure a smooth transition. Nonetheless, if executed successfully, this move could yield significant advantages and open new avenues for growth and cooperation between Bangladesh and India.

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