https://sputniknews.in/20230710/de-dollarisation-bangladesh-moves-to-settle-trade-with-india-in-rupees-2924847.html
De-Dollarisation: Bangladesh Moves to Settle Trade With India in Rupees
De-Dollarisation: Bangladesh Moves to Settle Trade With India in Rupees
Sputnik India
Since last year, many countries have moved away from the American currency, especially after the US moved to hike policy rates aggressively to tame a record... 10.07.2023, Sputnik India
2023-07-10T20:34+0530
2023-07-10T20:34+0530
2023-07-11T11:43+0530
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Strengthening their bilateral relations, India and Bangladesh are set to ditch the US dollar and start trading between the two countries in Indian rupees. Bangladesh Bank and the Indian High Commission are expected to announce the news regarding the exchange of Indian currency at an event in Dhaka on Tuesday. Bangladesh is currently seeing a decline in its foreign currency reserve, which has fallen by nearly 30 per cent from a year ago. The move will bring respite for many importers, as they can open letters of credit in rupees to source some of the products from India.While speaking to Sputnik, Professor (retd.) Anuradha Chenoy, Jawaharlal Nehru University, said the announcement is welcome and important, but not surprising.Dhaka’s exports to India stood at $2 billion in the year up to June 2022, while Bangladesh’s imports from India were $13.69 billion. India is Bangladesh’s second-largest source of imports after China.As fuel prices are rising in the global market, Bangladesh is struggling to pay for imported fuel because of a dollar shortage. Its dollar reserves have shrunk by over a third since February 2022, standing at a seven-year low of $31.60 billion.How are the Two Countries' Banks Cooperating?The Bangladeshi Central Bank permitted three banks – Sonali Bank, Eastern Bank, and the State Bank of India (SBI) – to open nostro accounts in the country with their counterparts in India.Nostro and vostro accounts are foreign bank accounts with another bank in the currency of that jurisdiction. Such accounts are used for international trade and other foreign exchange transactions.The move could open letters of credit in rupees to source a portion of the products from the neighbouring country and thus cut the use of the US dollar to some extent, Bangladeshi daily The Daily Star said.How Does De-Dolarization Benefit the Two Nations ?According to Chennoy, Bangladesh and India will benefit from trade in non-dollar currencies, as: India & Its De-Dollarization MoveAs per the Indian government, India's Central Bank, the Reserve Bank of India (RBI), permitted "domestic and foreign AD (Authorised Dealer) banks in 18 nations" to settle payments in Indian rupees, with these countries including Tanzania and Singapore. However, no country so far is doing 100 per cent trades in local currency, as experts say that achieving 100 per cent de-dollarisation will take time.“India is putting in place systems to internationalise its own currency, the Indian rupee, for international trade and investment. Indian economists and policymakers have for a long time argued in favour of this because it is the only way to dilute the dominance of the dollar”, Chenoy said.In July 2022, the RBI initiated a rupee settlement system for international trade through the "Special Vostro Accounts" system in designated Indian banks.“Another important step is that the Reserve Bank of India, set up an inter-governmental committee to work out the mechanics and technicalities required to internationalise the rupee. This Committee has submitted its report and we may soon see new steps being taken towards this aim. Clearly, India is ready to diversify its currency outside the dollar zone”, Chenoy added.
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De-Dollarisation: Bangladesh Moves to Settle Trade With India in Rupees
20:34 10.07.2023 (Updated: 11:43 11.07.2023) Deexa Khanduri
Sputnik correspondent
Since last year, many countries have moved away from the American currency, especially after the US moved to hike policy rates aggressively to tame a record surge in inflation stemming from the impacts of the pandemic and Ukraine conflict.
Strengthening their bilateral relations, India and Bangladesh are set to ditch the US dollar and start trading between the two countries in Indian rupees.
Bangladesh Bank and the
Indian High Commission are
expected to announce the news regarding the exchange of Indian currency at an event in Dhaka on Tuesday.
Bangladesh is currently seeing a decline in its foreign currency reserve, which has fallen by nearly 30 per cent from a year ago. The move will bring respite for many importers, as they can open letters of credit in rupees to source some of the products from India.
While speaking to Sputnik, Professor (retd.) Anuradha Chenoy, Jawaharlal Nehru University, said the announcement is welcome and important, but not surprising.
“India initiated a process to enable trade in INR with its neighbours and other countries some time ago. This bilateral trade in national currencies is designed to cut the trading countries’ reliance on the US dollar”, Chenoy said.
Dhaka’s
exports to India stood at $2 billion in the year up to June 2022, while Bangladesh’s imports from India were $13.69 billion. India is Bangladesh’s second-largest source of imports after
China.
As fuel prices are rising in the global market, Bangladesh is struggling to pay for imported fuel because of a dollar shortage. Its dollar reserves have shrunk by over a third since February 2022, standing at a seven-year low of $31.60 billion.
How are the Two Countries' Banks Cooperating?
The Bangladeshi Central Bank permitted three banks – Sonali Bank, Eastern Bank, and the State Bank of India (SBI) – to open nostro accounts in the country with their counterparts in India.
Nostro and vostro accounts are foreign bank accounts with another bank in the currency of that jurisdiction. Such accounts are used for international trade and other foreign exchange transactions.
The move could open letters of credit in rupees to source a portion of the products from the neighbouring country and thus cut the use of the US dollar to some extent, Bangladeshi daily The Daily Star said.
How Does De-Dolarization Benefit the Two Nations ?
According to Chennoy, Bangladesh and India will benefit from trade in non-dollar currencies, as:
Both nations will save their dollar reserves for emergency needs.
They will save foreign exchange and avoid a third currency coming between them.
The move will help stabilise and give value to their currencies, and thus their economies.
This will uplift their geo-economic options and help them provide strategic autonomy.
The system is more sustainable for bilateral trade, and Bangladesh can further use this with others.
India & Its De-Dollarization Move
As per the Indian government, India's Central Bank, the Reserve Bank of India (RBI), permitted "domestic and foreign AD (Authorised Dealer) banks in 18 nations" to settle payments in Indian rupees, with these countries including Tanzania and Singapore. However, no country so far is doing 100 per cent trades in local currency, as experts say that achieving 100 per cent de-dollarisation will take time.
“Bangladesh, like other countries of the Global South, is acutely aware of how the US uses its dollar privilege for unilateral coercive economic measures against countries that do not conform to US interests and will. These coercive measures in the form of sanctions are currently being used against 27 per cent of the world’s countries”, Chenoy said.
“India is putting in place systems to internationalise its own currency, the Indian rupee, for international trade and investment. Indian economists and policymakers have for a long time argued in favour of this because it is the only way to dilute the dominance of the dollar”, Chenoy said.
In July 2022, the RBI initiated a rupee settlement system for international trade through the "Special Vostro Accounts" system in designated Indian banks.
“Another important step is that the Reserve Bank of India, set up an inter-governmental committee to work out the mechanics and technicalities required to internationalise the rupee. This Committee has submitted its report and we may soon see new steps being taken towards this aim. Clearly, India is ready to diversify its currency outside the dollar zone”, Chenoy added.
