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Bangladesh and India will trade local notes to reduce the dollar’s dominance.

According to a Bangladesh Bank (BB) official speaking to Anadolu, Bangladesh and India chose to trade in their national currencies, the taka and rupee, to avoid the rising dollar’s domination in trading and to support local enterprises.

The two neighbors reached the decision as many nations, including those in the area, are experiencing a dollar crisis due to the ongoing conflict between Russia and Ukraine and the strain on dollar reserves in central banks.

According to media sources, the availability of dollars at commercial banks disrupts Bangladesh’s import process.

In addition to the dollar, transactions in takas and rupees are reportedly boosting prospects of lowering the cost of trade and relieving pressure on dollar reserves.

The taka and rupee can be used to trade import and export prices between the two nations.

the decision to increase regional trade and save costs for businesses

According to Md, local currency transactions became possible as more nations began to adopt this payment system convergence. Mezbaul Haque, BB’s executive director, and spokeswoman, says countries are taking this action to boost bilateral or regional trade, lower corporate costs, and speed up transactions. He explained the reasoning behind the decision to Anadolu.

Bangladesh’s main trading partner is India. Bangladesh imports a considerable amount of merchandise from India. So, making such a choice would lower costs for doing business, speed up transactions, and increase regional trading, according to him.

Haque used the trade and interactions between Singapore and India, Singapore and Malaysia, and Australia and South Africa as examples.

We have carefully considered India’s proposal to begin accepting payments in rupees, and we will let banks open LCs (Letters of Credit).

Haque added that direct taka-to-rupee transfers are being considered to reduce swings because, in traditional trade, the currency must be translated numerous times at various stages.

Sonali Bank and Eastern Bank in Bangladesh have begun opening transaction accounts with the State Bank of India and ICICI Bank to carry out the decision.

According to Haque, who added that he hopes the procedure would start in June, the two Indian banks are similarly opening accounts in the two Bangladeshi banks.

BB previously stated that any trader in Bangladesh who wishes to open an LC for import or export may do so and that if the banks wish to open an LC in rupees, that would be permitted.

A recent Indian group visited Dhaka and conversed with Sonali Bank and Eastern Bank. The two countries central banks have made choices about their monetary policies.

The Reserve Bank of India previously released guidelines for using rupees in international trade.

the trade deficit, putting traders to the test, and reaping significant rewards

Bangladesh’s exports to India are valued USD 2 billion, while its imports from India are worth USD 13.69 billion, according to BB, the central bank.

According to the bank, Bangladesh’s exports will lessen the pressure on the dollar if more trade is conducted in rupees.

However, as is the current situation, the nation must pay the remainder of the import price in US dollars.

India and Bangladesh have a significant trade deficit. Only the amount of rupees it exports to India can be traded.

Due to the delay, Bangladesh won’t be able to use the new system’s currency availability advantages.

According to BB, if Bangladeshi exports to India gradually rise, so will the likelihood of trading in takas and rupees.

Haque acknowledged that the trade deficit with India might delay a quick advantage.

“We are constantly thinking of methods to close the trade gap. Bangladesh is an import-dependent nation, with India being among our top sources of imports. Therefore, the decision will benefit both countries in the long run.

Getting traders involved in the process will be extremely difficult. Economists predicted that importing raw materials from abroad and exporting them to India would result in higher transaction costs and less incentive for traders to deal in rupees.

“Traders will typically be motivated to conduct business in local currency if we can lower the transaction cost and avoid dual currency conversion, as cost is the main determining factor. According to Haque, businessmen will move for it once they see the benefits.

He asserted that the choice will encourage increased trade and business in South Asia.

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