As Bangladesh and India on Tuesday launched trading in the rupee, Bangladesh Bank Governor Abdur Rouf Talukder said they are in the process of starting a taka-rupee dual-currency card by December.
“We are in the process of making our own national card (debit card). We are expecting to launch it by September. We are also working with the Indian (central bank) side. If they allow us, we will be able to convert it and kick-start the dual currency card by December this year,” he said.
Indian High Commissioner Pranay Verma was also present.
The governor said the situation prompted them to find alternatives and cut dependency on the dollar.
“The Covid pandemic, post-Covid recovery struggles and the latest Ukraine war have severely hurt almost all economies. At the same time, policy-rate hike by advanced economies has put extra pressure on all other currencies. These incidents put pressure on external sectors of the country and the forex market faced a sudden pressure. The situation tempted us to rethink and review a way out to minimize over-dependency on reserve currencies,” said Rouf.
With that, he said, Bangladesh and India agreed to introduce trade settlements in Indian rupees.
“The journey is set to start with partial trade payment between the two countries. Initially, the trade between India and Bangladesh in Indian rupees will be based on the export earnings in rupees. The introduction of this mechanism will help our importers to open LCs and make payments in the Indian rupee,” said the governor.
“The global financial community is still experiencing difficulties in trade payment settlement due to growing geo-political complexities. This effort might help to normalize and minimize the complexity.”
He said the successful operation of this mechanism will help Bangladesh lessen the pressure on its forex reserves, reduce transaction costs and promote bilateral trade between the countries.
This mechanism will also pave the way for further alternative payment-related policy design and mechanism, the governor said.
Initially, Bangladesh's state-owned Sonali Bank Ltd and private Eastern Bank Limited (EBL), and India's State Bank of India (SBI) and ICICI Bank are participating in the settlement of trade transactions in rupees.
They opened “nostro accounts” in the Indian banks in rupees. A nostro account is an account opened by a bank of one country to another country's bank for foreign currency transactions.
Indian importers can open letters of credit (LC) in those two Indian banks to import goods from Bangladesh in rupees. Similarly, Bangladeshi importers can open LCs in those two selected Bangladeshi banks to import products from India in rupees.
Tamim Agro Industries is the first company in Bangladesh to open an export LC worth 16 million rupees. Nita Company Ltd is the first exporter of India that opened 12 million rupees LC.
The rupee-taka exchange rate will be decided on a cross-currency basis by individual banks. Settlements will happen through the SWIFT mechanism between countries and the RTGS mechanism within the countries for crediting exporters' accounts.
The governor said this new initiative will have a “psychological effect” on traders on both sides and help to increase trade.
“This will open a new window for us to go in a big way into the big market of India," he said.