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2 Bangladeshi banks introduce Indian rupee trade transactions to boost reserves

2 Bangladeshi banks introduce Indian rupee trade transactions to boost reserves
by Insider Desk
July 9, 2023

Two Bangladeshi banks are set to introduce trade transactions in Indian rupees, departing from their reliance on the US dollar. 

Sonali Bank and Eastern Bank, both state-owned, have taken the initiative named ‘nostro,’ an account to keep currency in rupees with State Bank of India and ICICI Bank. 

These accounts enable banks to hold funds in foreign currencies at other banks, facilitating international trade and foreign exchange transactions.

One of the officials of Sonali Bank stated this move is just the beginning, as more banks are expected to join in the coming days. 

The aim is to ease pressure on Bangladesh’s foreign reserves and strengthen economic ties. The specific exchange rate mechanism will be determined on a bank-to-bank basis, with a formal announcement scheduled for July 11.

The decision to transact in Indian rupees is driven by its convenience and cost-effectiveness in the India-Bangladesh trade. 

India is currently Bangladesh’s second-largest source of imports, following China. In the year leading up to June 2022, Dhaka sold $2 billion of products to India in return, buying products worth $13.69 billion. 

Bangladesh’s dollar shortage has made it challenging to pay for imported fuel, leading to a significant decline in its dollar reserves. 

Since the beginning of the Russia-Ukraine war in 2022, these reserves have dropped by over a third, hitting a seven-year low of $31.60 billion. 

Consequently, the value of Bangladesh’s taka currency has depreciated by over 16% within the past 12 months, ending in May.

By diversifying their trade currency, Bangladeshi banks aim to bolster foreign exchange reserves and reduce dependence on the US dollar. 

This strategic shift seeks to address the current economic challenges faced by the country and foster stronger economic ties between Bangladesh and India.

Tags: BangladeshIndiarupeetakaTrade
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