Dhaka, July 11 (EFE).- Bangladesh Tuesday began trading with India in Indian rupees following an unprecedented deal to reduce pressure on its reserve currency amid a severe dollar crisis.
Calling the event “historic”, Bangladesh Bank governor Abdur Rouf Talukder, who launched the trading at an event hosted by the High Commission of India in Dhaka, said both the neighbors would benefit from the move.
“India and Bangladesh have witnessed a significant expansion in bilateral trade over the years. Trade position between India and Bangladesh has seen remarkable growth, with both countries benefiting from their economic cooperation,” he said.
He said the trade payment until today was settled through the Asian clearing union, which means Bangladesh cleared all the dues in reserve currencies.
Talukder said the Covid-19 pandemic, post-Covid recovery struggle, and the Ukraine war had hurt almost all economies.
“At the same time, policy rate hike by advanced economies has increased extra pressure on all other currencies. The situation tempted us to rethink and review a way out to minimize over-dependence on reserve currencies.”
Indian High Commissioner to Bangladesh Pranay Kumar Verma called the event a new beginning in the bilateral relationship between the two countries.
“This is just a beginning, but a very important beginning,” he said at the event.
A Bangladesh Bank official told EFE trade settlement in Indian rupees would apply to export amounts from Bangladesh, and rest of imports from India would continue to in dollars.
The arrangement will enable Bangladeshi exporters to receive export proceeds in rupees for import bill settlement, according to Habibur Rahman, chief economist of Bangladesh Bank.
Economists said the initiative would benefit Bangladesh little due to a trade gap between the two countries.
“There is nothing to be excited about. Due to the trade imbalance, it will reduce pressure on the dollar up to two billion dollars only,” Ahsan H. Mansur, Bangladeshi economist and Executive Director of the Independent think-tank Policy Research Institute, told EFE.
“Only a handful of businessmen might take advantage of this. Those who are involved in both export and import business with India could be somewhat benefited. But their numbers are very few.”
According to the Bangladesh Bank, the country has a deficit of $12 in bilateral trade with India.
While Bangladesh imported products worth $14 billion from India in the last financial year, the country exported $2 billion-worth products.
Zahid Hussain, former lead economist of the World Bank’s Dhaka office, told EFE that the benefits of trading in the Indian currency might put Bangladeshi businesses at risk of becoming dependent on Indian monetary policy and the fluctuation of the rupee exchange rate.
“It will increase the risk for our traders. We would have been befitted if Indians had accepted our Taka (Bangladeshi currency)…It is more of a political decision than an economic one.”
Overwhelmingly import-dependent Bangladesh has battled a dollar crisis despite the International Monetary Fund’s approval of a loan package of $4.7 billion earlier this year.
The country’s foreign exchange reserves grew steadily for several years to reach a record $48.06 billion in August 2021 on the back of robust economic growth before declining amid the Covid-19 pandemic and Russia’s war on Ukraine.
In May, the Bangladesh foreign exchange reserves also fell to a seven-year low of $29.83 billion. EFE