The Bangladeshi news service The Business Standard is reporting this week that India and Bangladesh have hammered out a deal to shift away from the US dollar in bilateral trade.
The report stated that the two nations have agreed that part of their trade transactions will be carried out in their local currencies, the Indian rupee, and the Bangladeshi taka. The move has been being discussed for months, according to the report.
The outlet noted however, that they will not completely eliminate all trading in dollars. The report said that Bangladeshi exports to India, which were worth roughly $2 billion in 2022, will be conducted entirely in rupees and takas. However $2 billion (out of what was about $13.69 billion, as of the previous fiscal year) in Indian exports to Bangladesh will be paid for in rupees, with the remainder continuing to be paid for in dollars.
The transactions will be facilitated through two Indian Banks and two Bangladeshi banks opening accounts with each other. The Bangladeshi banks, Sonali Bank and Eastern Bank, will open accounts with the Indian banks the State Bank of India (SBI) and ICICI Bank, and vice versa.
CEO and managing director of Sonali Bank, Afzal Karim, said in an interview, that with time, it is expected more banks from both countries will join the process. He added that both countries will see the pressure on their US dollar holdings diminished through the deal.
Abdul Matlub Ahmad, the Bangladesh-India Chamber of Commerce and Industry president said, there are still some procedural issues to be worked out in making the switch from the US dollar to domestic currencies in trade settlements. He did note businesses, which have been requesting the central banks implement the shift for some time, welcomed the decision.
Matlub Ahmad added, “The procedural steps are being taken care of. However, it may take several months for [transactions] in taka and rupee to start.”
India’s new Foreign Trade Policy for 2023, which was unveiled earlier this month, has as its centerpiece, shifting away from the use of the dollar, so the nation can encourage the use of the rupee in foreign trade. The country has already inked deals to switch to rupee payment mechanisms for Iranian crude imports, and in trade with Malaysia. India currently has rupee trade mechanisms in place with 18 countries, including Russia.
