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On Sept 15, Bangladesh Bank asked local commercial banks to open accounts in corresponding banks in China in Chinese currency, the Yuan.
RBI Moves
But it is yet to come with any such declaration regarding Indian currency, the Rupee, although the State Bank of India has asked Indian exporters to avoid settling deals with Bangladesh in the US Dollar and other major currencies. The RBI gave the directive four days after the BB’s announcement on yuan, also known as Renminbi, or ‘people’s money’. It wants transactions to be completed in local currencies – the Taka and the Rupee. BB spokesperson Serajul Islam told reporters that the SBI operated under the Reserve Bank of India, the central bank of India. He noted that the Indian central bank did not give any such directive for the Indian traders.
Strong Dollar Hurts Many
The BB was yet to enlist Rupee to settle letters of credit until Sept 24. BB officials admitted that the central bank was reviewing currency diversification in foreign trade to reduce sole dependency on the US Dollar. The appreciation of the dollar due to interest rate hikes by the US central bank, the Fed, against the taka and other major currencies put a big pressure on the country’s economy in recent months. The country’s foreign exchange reserves fell from $48 billion last year to $37 billion in the past month, which is sufficient to foot import bills for five months.
BB for Yuan
BB’s announcement regarding yuan came less than a month after a visit by Chinese foreign minister Wang Yi in Dhaka on Aug 6 and Aug 7. It has been reported that the bilateral financial and currency cooperation was strongly recommended by the Chinese foreign minister to help facilitate trade and economic cooperation. The uses of taka and yuan in bilateral trade are expected to reduce transaction costs and mitigate exchange risks. A currency clearing arrangement between the central banks of our two countries will also create scopes for more Chinese investment in Bangladesh as well as the import of Bangladeshi goods to China.
MCCI Welcome BB Move
The BB move also came more than one-and-a-half months after chamber bodies, including the Metropolitan Chamber of Commerce and Industry, urged the central bank to allow multiple currencies for international trade settlements to cut Bangladesh’s over-reliance on the US Dollar amid volatility and rising cost of the greenback. So, they welcomed the BB clearance to settle payments for international trade through yuan, but said implementation will be challenging. They noted that a dialogue between the central banks of two countries should begin immediately to make the announcement operationalised.
Tasks To Be Done
Businessmen said the exchange rate with yuan needs to be determined as the currency swap option is almost impossible because of the yawning trade gap tilted towards China for its around $14 billion trade surplus. Bankers have viewed that the rise of China as a major economic powerhouse in the global economy has already been accepted by many including the International Monetary Fund. Since Oct 1, 2015, the yuan has joined the US dollar, the euro, the yen and British pound in the IMF’s special drawing rights (SDR) basket, which determines currencies that countries can receive as part of IMF loans. It marks the first time a new currency has been added since the euro was launched in 1999. The inclusion into the SDR is a milestone in the internationalisation of the renminbi, and is an affirmation of the success of China’s economic development.
Trade in Rupee on Experimental Basis
The businessmen viewed that adverse impact due to fluctuation of the currency exchange rate could also be avoided if Dhaka can transact in local currencies with Delhi. India is the second largest trading partner of Bangladesh after China. Bangladesh exported goods worth S$1.76 billion against the import of $14.09 billion in 2021. But economists viewed that there were some challenges since the rupee has been depreciating against the greenback substantially in recent months. They viewed that transactions in local currencies between Dhaka and Delhi might not bring any major impacts to avoid transactions in the US dollar. Still, they said some parts of the transaction could be made in local currencies on an experimental basis.
SCO Calls
It has been reported that the overall development regarding Bangladesh’s international trade transactions with China and India in local currencies are linked to calls from the Shanghai Cooperation Organization – which has both China and India as its members – for increasing the use of national currencies for trade among the member countries at its leadership summit in the Uzbek city of Samarkand last month. Bangladesh is not yet an SCO member but has applied for observer status in the Eurasian organisation. It should be noted that barring China and India, Bangladesh’s trade volumes with other SCO members aren’t quite significant.
SOC Grows
Therefore, doubts by some local trade and industry experts about the success of Dhaka’s bilateral currency cooperation in the long run is quite logical. To deal with this challenge, Bangladesh will need to increase its trade with other SCO countries, which are now increasingly looking to expand international trading in national currencies. The joint declaration released after the SCO Summit stated that the leaders ‘noted the adoption by the interested SCO member states of the road map on increasing the share of national currencies in mutual settlements and called for expansion of this practice.’ The SCO has grown as a big international organisation and currently comprises nine member states: China, India, Russia, Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Uzbekistan and Iran. Afghanistan, Belarus and Mongolia have observer status while there are nine dialogue partners including Türkiye, Sri Lanka, Cambodia, Azerbaijan, Nepal, Armenia, Egypt, Qatar and Saudi Arabia. According to the Samarkand Declaration adopted by the member states, Kuwait, UAE, Maldives, Myanmar and Bahrain will soon be granted the status of dialogue partners.
De-Dollarisation
The nine full members of SCO now represent 25 per cent of the world’s land area, 42 per cent of the world’s population and contribute 25 per cent to the world’s GDP. With a renewed focus on international trading in national currencies, it has been hoped the SCO can create a potential market for other countries to trade with SCO member countries in their currencies or a mutually-accepted single currency such as the Chinese yuan. This will have a severe impact on the global currency leader dollar. It has been believed that if Bangladesh successfully trades in local currencies with two of its largest trading partners, it will encourage many other countries to do the same to lower dependency on the greenback. Amid the evolving scenario, it can be said that Bangladesh staying in between China and India becomes an ideal platform for making experiments to challenge the domination of the dollar.