Bangladesh, India to begin bilateral trade in rupee from July 11

Bangladesh will commence its efforts to settle trade with India in rupee from Tuesday, as it joins a global effort to cut over-reliance on the US dollar in settling foreign trades, Bangladeshi news outlet The Daily Star reported.

The move is expected to be confirmed by the Bangladesh Bank and the Indian High Commission at an event at the Le Meridien Hotel in Dhaka on Tuesday. The central bank governor and the Indian high commissioner are expected to attend the event, a Bangladesh Bank (BB) official said on conditions of anonymity.

The Bangladesh Bank has already permitted three banks in the country – Sonali Bank, Eastern Bank, and the State Bank of India (SBI) in Bangladesh – to open ‘nostro’ accounts with their Indian counterparts. A nostro account refers to a bank account held by a domestic bank in a foreign country in the currency of the country where the funds are held.

Eastern Bank, which is a private commercial bank, and SBI Bangladesh have already opened nostro accounts with the ICICI Bank and SBI in India, confirmed the BB official, adding that state-run Sonali Bank will follow suit soon.

ICICI Bank and SBI have been permitted by the Bangladesh Bank and the Reserve Bank of India (RBI) to start settling bilateral trade using Rupee.

This move will allow importers to open letters of credit in the Indian Rupee (INR) to source a portion of the products from India, thus reducing reliance on the US dollar.

“We, from the MCCI, suggested the central bank introduce a second currency in our international trade, like trading with India in the rupee,” Md Saiful Islam, president of the Metropolitan Chamber of Commerce and Industry (MCCI), told a Daily Star interviewer.

Bangladesh’s rupee move part of global effort to move away from dollar

The US dollar accounted for nearly 90% of global forex transactions in 2022, making it the single most traded currency in the FX market, according to the report.

However, countries have been looking to move away from the dollar after the United States moved to hike policy rates aggressively to control a record surge in inflation caused by the onset of the Russia-Ukraine conflict, and the lingering effects of the COVID pandemic.

This monetary tightening in the US had led to foreign investors pulling their money from several Asian countries, triggering a chain of currency depreciation, according to the Asian Development Bank.

As a result, members of the Asian Clearing Union, which contains Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka, have reached a consensus to settle bilateral trades in local currencies, including in the Indian Rupee, reported Bloomberg.