• Bangladesh and India have agreed to conduct their bilateral trade in national currencies, away from the U.S. dollar.
• The decision was made due to liquidity issues of foreign currency in Bangladesh that are disrupting imports into the country.
• The agreement is expected to cut costs related to using the U.S. dollar, as well as speed up transactions and boost regional trading.
Bangladesh & India Bypass US Dollar
Bangladesh and India have decided to conduct trade settlements in their own currencies, bypassing the dominance of the U.S. dollar due to liquidity issues of foreign currency disrupting imports to Bangladesh.
Reasons For Decision
The decision was made with an aim of safeguarding the flow of imports to Bangladesh, as well as cutting a series of costs related to the usage of the U.S. dollar by exchanging Indian rupees and Bangladeshi takas instead. Mezbaul Haque, executive director of the Bangladesh Bank, stated: “India is a major trade partner of Bangladesh…the decision will help in the long-term for both countries”.
Implementation & Effects
The process is expected to start in June, with banks opening transacting accounts with their respective counterparts to facilitate settlements; this would avoid multiple currency conversions traditionally done in settlements and cut costs for both countries involved in trade exports/imports.. The Reserve Bank of India also implemented its newest foreign trade policy guidance on April 1st which allows countries with a dollar squeeze to pay for imports in Indian rupees as part of cost-cutting benefits from bypassing US Dollar usage altogether..
Accordingly, Bangladesh imports almost $14 billion worth of goods from India while exporting only around $2 billion; however this agreement will only allow for payment being made by Bangladesh if it is equal or less than what they export back (i.e., $14bn).
Overall this agreement seeks mutual benefit between two major trading partners through exchanging goods without US Dollar involvement; thus avoiding liquidity issues caused by external factors such as Russia-Ukraine conflict and increasing efficiency through eliminating multiple currency conversions traditionally done while facilitating faster transactions between two parties involved