by Rejaul Karim Byron in The Daily Star, Mar 3, 2023
Bangladesh and India are in talks about doing away with the dollar as the official currency for payments between the two countries — a development that would bring down the cost of trade as well as the conversion rate losses for businesses and ordinary people.
The talks took place on the sidelines of the G20 Finance Ministers and Central Bank Governors meeting held in the southern Indian city of Bengaluru on February 24-25.
Every year, Bangladeshi nationals spend about $2 billion on treatment, tourism and education in India, according to the government’s estimates. At the same time, India is among the top three import destinations for Bangladesh.
And official transactions between the two nations are conducted in US dollars and then converted to rupee or taka, which leaves both sides with some conversion losses.
For example, when a Bangladeshi credit cardholder makes purchases in India, the rupee amount is converted to dollars and from dollars to taka. The cardholder ends up paying more than the actual rupee-taka exchange rate because of the two-time dollar conversion for just one transaction.
It is the same case for businesses when they import goods and services from India.
This prompted the Bangladesh Bank Governor Abdur Rouf Talukder and Reserve Bank of India Governor Shaktikanta Das to discuss the possibility of having an arrangement such that transactions would not be pegged to the dollar.
For Bangladeshis visiting India, they would have a dual currency card that they can load with Indian rupees before travelling and vice versa. The exchange rate would be derived from the two currencies and not be worked backwards from the exchange rate of the dollar.
For Indian businesses, this arrangement would mean they would get their bills cleared faster as no dollars would be involved.
This was brought up at Wednesday’s meeting of the National Economic Council chaired by Prime Minister Sheikh Hasina, according to people with direct knowledge of the discussions.
At the meeting, Talukder said it would also alleviate the pressure on foreign currency given the large volume of payments to India.
“The pressure on reserves has come down a lot. The import bills have come down because of the measures taken. It is now possible to meet the import bills with the export proceeds and remittance inflows. But there are other dollar outflows that need to come down.”
And the arrangement with the RBI would help on this front.
Das is on board with the idea of the dual currency and the two central banks would be working on the modalities.
It would first be rolled out on a test basis.
But businesses would have to wait to pay their bills in rupees as it would need the cooperation of the private banks.
The governor would sit with the banks soon over the issue. https://www.thedailystar.net/news/bangladesh/diplomacy/news/dhaka-delhi-discussing-de-dollarisation-3261576
