Two Bangladeshi banks, Eastern Bank and state-run Sonali Bank, plan to introduce Indian rupees in trade transactions as a means to reduce reliance on US dollars and strengthen foreign exchange reserves. This move aims to foster convenient and cost-effective cross-border transactions, further enhancing economic ties between the two nations.
According to the officials from both Eastern Bank and Sonali Bank, they have opened “nostro” accounts in Indian rupees with the State Bank of India and ICICI Bank. A nostro account is essentially an account that a bank holds in a foreign country, denominated in the currency of that jurisdiction. These accounts serve the purpose of facilitating international trade and settling various foreign exchange transactions.
Up until now, Bangladesh has mainly used US dollars for all its trade transactions, but according to the managing director of Sonali Bank, Afzal Karim, “More banks will take this initiative as well which will ease pressure on the foreign reserves”. Meanwhile, Ali Reza Iftekhar, the managing director of Eastern Bank also added that “the exchange rate mechanism will be determined on a cross-currency basis by each bank individually and a formal announcement regarding this matter is scheduled to be made on July 11”
After China, India holds the position of Bangladesh’s second-largest import partner. Between July 2021 and June 2022, Bangladesh’s exports to India amounted to $2 billion, while its imports from India reached $13.69 billion. Unfortunately, Bangladesh faces challenges in paying for imported fuel due to a scarcity of US dollars. As a result, the country’s dollar reserves have decreased by over a third since the onset of the Russia-Ukraine conflict in 2022, reaching a seven-year low of $31.60 billion.
To address the decline in forex reserves, Bangladesh’s central bank has announced its upcoming launch of a debit card in taka and rupee denominations, scheduled for September. This initiative aims to conserve dollars as the reserves diminish. As part of the travel quota, Bangladeshi individuals will be permitted to spend up to $12,000 worth of rupees in India annually. By introducing this card, the need for double currency conversion will be eliminated, resulting in a potential 6% reduction in losses, as highlighted by Governor Abdur Rouf Talukder in recent statements.