Trade in rupee to boost export, cut cost: Cenbank governor

Bangladesh has entered a new chapter of economic ties with neighbouring India by introducing trade settlement in Indian rupee on Tuesday, which will reduce the cost of doing business for both the nations and ease pressure on foreign exchange reserves to some extent.

"The new trading mechanism will increase export and reduce pressure on the forex market," said Bangladesh Bank Governor Abdur Rouf Talukder at the launching of "Bangladesh trade in Indian rupee" jointly organised by the Bangladesh Bank and the Indian High Commission at a city hotel today.

Referring to the current forex market pressure, the governor said the situation prompted them to find a way out to minimise the over-dependency on reserve currencies.

Indian High Commissioner to Bangladesh Pranay Verma also said the new arrangement – initially made through designating selected Indian and Bangladeshi banks – will commence settlement of bilateral trade in Indian rupee and can help reduce pressure on foreign exchange reserves.

"There are clear benefits of this new mechanism. It will reduce pressure to some extent on foreign exchange reserves for the settlement of trade while allowing some savings on exchange costs for traders. Essentially, this mechanism would help in bringing certainties of dealing in our own currencies," he said.

Bangladesh is India's biggest trade partner in South Asia and the fifth largest globally. In the last five years, bilateral trade has more than doubled.

The country's exports to India have consistently crossed the $1 billion mark consecutively over the past three years. In the last financial year, it crossed $2 billion for the first time.

India, with its diverse market, has emerged as the top export destination for Bangladesh in Asia, said Verma.

Explaining how the export will increase, the Bangladesh Bank governor said, "Because Indian customers will be seeing that they are buying things with their own currency, they will consider it as their own product. I think this will open a new window for us [Bangladesh] to go big in the market of 140 crore people. We have a comparative advantage in so many products.

"It has been discussed for a long time to start trading in Indian rupees to reduce the over-dependence on reserve currencies. We all know that our ministries have been planning for a long time on how to settle or start this programme."

Sharing the back story of introducing rupee trading, Governor Abdur Rouf said after returning from India, the prime minister instructed him to look into the matter and make it happen at the earliest.

"The finance minister arranged a governors' meeting at Bengaluru. This year in April, I attended and discussed two issues with Reserve Bank of India (RBI) Governor Shaktikanta Das at the meeting. The first one was to start trading with India in Indian rupees and the other one was to introduce a dual currency card. The RBI governor was very positive and agreed to take necessary measures in this regard," Abdur Rouf said.

"After my return from Bengaluru, I met the Indian High Commissioner and he was very proactive and with his personal interest and initiative, we could complete all required formalities to start trading with Indian currency within a very short period of time. We really appreciate the proactive measures of the Indian Bank," said the Bangladesh Bank governor.

"Our dual currency card that we are in the process of finalising is expected to be ready in September this year. Card transactions will be launched by December," he said.

The Bangladesh Bank held a press conference on Tuesday over the inauguration of rupee trading where the central bank spokesperson Majbaul Haque explained how the bilateral trade mechanism will reduce business costs.

"We have two main benefits here. One is that, apart from the US dollar and Bangladeshi taka, we have got a third currency option. We used to settle only in dollars so far. Now we will settle in rupees," he said.

"The second advantage is reduced transaction costs. So far, we have first converted our payment from takas to dollars. India has converted from rupees to dollars and done the price costing. Later received the payment in dollars and converted it to rupee. This means a different charge was imposed in each stage. The more steps you can reduce, the lower the charges will be. So, we will have huge savings in transaction cost," said Majbaul Haque.

First-day trade of Rs28 million

The first export trade in the Indian rupee for Bangladesh is being done by Tamim Industries Limited Bogra for 16 million. The import LC has been opened by the ICICI Bank in India, and the State Bank of India's (SBI) Bangladesh office is the bank of the exporter. The chairman of Tamim Agro Md Shahjahan Ali has taken the export document folder from the guests.

Additionally, the first import in rupee in the country is being done by the Nitol-Niloy Group for 12 million. The import LC has been opened by the SBI Dhaka branch in Bangladesh. Md Abul Matlub Ahmed, chairman of Nitol-Niloy Group, took the import document folder from the guests.

The import and export documents were handed over by Sonali Bank, Eastern Bank of Bangladesh and India's State Bank of India and ICICI Bank.