In the last century, there are many emerging economies bestowed with different adjectives.
These are all on a growth path through the export-led economic model.
Global value chain (GVC) is a common word in which many want to be participants.
GVC is basically nothing more than a new system, rather than a new acronym, GVC for horizontal production process.
The system brings an output through integration of different subcomponents.
In a simple example, production of a garment needs different components ranging from cotton to price tag.
Participants of the value chain are in presence at different locations and share a portion of output value.
We are in the era of the fourth industrial revolution.
In the first industrial revolution, steam engines dominated the world.
Electricity became a dominating factor in the second industrial revolution; computers including the internet in the third industrial revolution, and information and communication technology with artificial intelligence will dominate in the fourth industrial revolution.
Coal, fuel, gas, and renewable energy are, in other categories, dominant factors respectively in the first, second, third and fourth industrial revolutions.
The world is divided into many categories like the rich and the poor; high income countries, middle income countries, lower middle income countries, low-income counties; and developed countries, developing countries, least developed countries.
Whatever the name is assigned, the world can be classified by consuming countries and manufacturing countries.
Participants in the GVC are basically manufacturing countries which work as manufacturing hubs for consuming countries.
Though all are, in true sense, consuming countries, western countries are real consumer ones which do not produce, rather consume goods produced in other parts of the world.
Consuming countries are in all eras at an advanced stage.
The present time is known as the fourth industrial era but this is true for consuming countries.
Manufacturing countries are still in between second and third industrial eras.
Export industries are termed as sweatshops.
Exports are manufacturing activities which are rarely environment-friendly.
The rich countries at the early stage of the industrial revolution are in the belt of manufacturing activities.
They are also in the manufacturing process now but the activities are at service-technology dominance, output of which is used for manufacturing activities by the production hubs.
What is the factor helping them to be consuming countries is a question – global political power or military power or financial power or combination of all powers?
Maybe all factors are in an active position.
With regards to consumption, a financial tool is a factor because it is involved with financial flows.
They are in possession of currencies used internationally.
A currency like the US dollar is as good as a solar system.
Currency per see is not in operation unless it is being piloted.
SWIFT (Society for Worldwide Interbank Financial Telecommunication) works as a pilot to run the currency.
It is a global payment system aggregator for interbank transactions through messaging services.
With the support of swift networks, the US dollar dominates the global financial system, suppressing all other international currencies.
However, the hegemonic position of different global currencies makes the issuers to be consuming countries.
In the present century, the dominant financial transactions system works as invisible war weapons which can impose sanctions over other countries.
This leads to switch-off the financial messaging networks of swift. Such activities hamper GVC.
As a result, different alternative solutions are sought for settlement of payments; the solutions are as good as the barter system used in different names.
Alternatives are a much talked issue during the current period due to sanctions on Russia.
The sanctions make disruption of the supply chain with regards to payments settlement for which an alternative settlement channel is needed.
Alternative messaging systems for payments settlement – INSTAX, CIPS, SPFS are found in operation.
But their scope of operation is limited – country-specific and/or currency-specific – within the networks.
Banks in Bangladesh work under a swift network.
Most of the external transactions are in US dollars, settlement of which is made through bank accounts maintained in major cities at western world - consuming countries.
Since accounts are maintained in these locations, resident banks are in their grips.
Bangladeshi banks are, per se, scared regarding unexpected situations resulting from the use of other messaging networks.
As such, the present situation is not favorable for using alternative messaging systems by banks.
The strength of the dollar
As noted earlier, earnings and payments of cross border transactions of Bangladesh are in US dollars.
Interesting thing is that China is one of our major input sourcing stations with billions of US dollars in amount.
But settlement of payments for transactions with them is in US Dollar.
This country may be an alternative settlement destination through their currency, RMB.
This option may be used provided that payments received through China in their currency can be used for making import payments to China and relevant other countries.
Despite that, the US dollar is needed for buying RMB to settle payments in case of a deficit.
Without a traditional network, whether it is possible to use settlement of payments with countries under sanctions is a question.
There are different options used to bypass the prevailing mechanism. One of them is to settle cross-border payments in non-convertible local currencies.
Like maintaining accounts abroad, the option warrants banking arrangements with a particular country including maintenance of accounts.
In the same way, banks abroad need to maintain accounts with banks in Bangladesh.
Settlement of payments is made through adjustment of balances between resident and foreign accounts.
Imbalance, if any, needs to be settled otherwise through third countries.
This is an alternative solution which is, to some extent, as good as the barter system.
Another option is counter trade, a new version of the barter system.
Participants like exporters, importers, or traders enter into arrangements, under the system, with counterparts abroad for settlement of import payments against export proceeds.
Foreign counterparts need to maintain escrow accounts in convertible currencies with banks in Bangladesh.
Same type of accounts will also be maintained by Bangladeshi parties abroad.
The escrow accounts will, in case of imports into Bangladesh, be credited with equivalent convertible currencies against payments from importers in local currency.
The balances held in the accounts will be used to make payments to exporters against their exports under counter trade channels, and service charges to Bangladeshi parties working as facilitators.
In the same way, the escrow accounts maintained by Bangladeshi parties abroad will be deposited by proceeds against exports from Bangladesh,
The proceeds will be utilized for settlement of payments against imports into Bangladesh, and payments of service charges to counterparts abroad.
In the system, banks just maintain accounts and reconcile the position.
Transactions related documentation are done by concerned parties.
This facilitates bypassing the banking channel for relevant transactions.
Despite this, imbalance in reconciliation is to be settled otherwise, such as payments to third countries against underlying transactions through normal banking channels.
This is a modified version of the barter system, and alternative to currency swap arrangements.
Why SWIFT is needed
Bangladeshi banks execute transactions through a swift messaging system from accounts in western countries with which Bangladesh has substantial trade.
It is not possible to implement a new alternative overnight, even if it is smooth in operation.
It takes time for the learning process to operationalize.
Transactions are executed by exporters, importers or traders under a counter trade model, for which banks will be free from unseen risk.
As said earlier, banks just execute transactions in local currency with a little portion by banking channel.
In most cases under present export trade formalities, exporters present electronic documents to importers abroad.
Banks just receive payments and observe statutory formalities including surrender of transport documents.
Cross border transactions are executed by international traders particularly exporters and importers with vast experiences.
They can facilitate cross border transactions without traditional banking procedures under a counter trade framework, for which policy support is needed.
The author works in the development sector and can be reached at mehdirahman82@ gmail.com
