Inflation and the global energy crises were the death knell for the global economy, which was only just beginning to return to normal in the post-pandemic period. Then the Russia-Ukraine war broke out, endangering the global financial system as a whole. Bangladesh is experiencing this flame also.
The supply chain in practically almost every country has been impacted by the Russia-Ukraine confrontation. When the Cold War erupted between Russia and the United States, seizing on this conflict, it became more complex. Western sanctions caused Russia to stop selling fuel to Europe, which led to the current global fuel crisis.Inflation has inflicted a serious setback on our economy since Bangladesh is a country that relies heavily on imports. The nation's economy is under constant pressure from factors such as the dollar issue, rise in consumer goods prices, lack of desired levels of foreign investment, fear of export of goods, sky-high levels of external debt, and the repercussions of the global recession. The foreign reserves have been steadily decreasing as a result of excessive imports and insufficient remittances for a long time, and they are now becoming more and more vulnerable.
Every year, Bangladesh must import numerous types of heavy machinery in addition to consumer goods. In March, the highest LC in the history of the country with such a $9.88 billion opening was done. Following it, a series of conditions were issued to restrict imports. To address the dollar shortage, government officials are no longer allowed to go overseas. To discourage the import of 27 various products, including pricey automobiles, cosmetics, jewelry (gold), ready-made clothing, home electrical appliances, and beverages, Bangladesh Bank has ceased issuing bank loans. Unfortunately, nothing is still functional.
Bangladesh's reserves have plummeted to $37.06 billion amid the adjustment of the Asian Clearing Union (ACU) bill from nearly $47 billion a year ago. To alleviate the issue and prevent the currency from devaluing, the central bank has also sold more than $130 million to commercial banks in recent days. 4.5 months' worth of import expenses, or $8 billion per month, will be covered by this foreign exchange reserve. On September 29's Thursday night, the central bank's sources corroborated this information.Additionally, foreign reserves are continuing to decline as a result of expatriates sending money through "Hundi" rather than through legal routes due to the higher dollar rate in the curb market.
In recent times, India, Indonesia, Sri Lanka, Myanmar, and the United Arab Emirates have discussed paying for their commercial transactions in their respective currencies. Following the imposition of financial sanctions by the West on Russia, severalcountries started engaging in currency trading using their own or a third currency. Furthermore, as the war prolonged, this activism grew substantially. Bangladesh also wishes to trade with India and Russia through this currency swap. But there is a constraining factor.
Due to Russia's expulsion from SWIFT, Bangladesh is unable to conduct any business with Russia using dollars. To address this issue, Russia has introduced its alternative transaction system, known as SPFS. Bangladesh was also asked to participate in this alternative system of sending messages for financial transactions, but Bangladesh denied it. Later, a Russian currency swap was presented as an alternative to SWIFT by Russia.The plan to import petroleum via a currency exchange from Russia was discussed, but it fizzled out in the middle. If a currency swap is to take place, the central bank of one country will open an account with the central bank of another country in the alternative currency. For instance, Bangladesh Bank will maintain a Ruble-based account. However, there's going to be a money account with the Russian Central Bank.
The Export Promotion Bureau reported that over $460 million worth of commodities were exported from Bangladesh to Russia in the seven months leading up to January of the current fiscal year. There have been imports of products totaling $75.4 million in the first three months of this fiscal year, through September. Before this, Bangladesh shipped a variety of goods to Russia in the fiscal year 2020-21 for a total of $665.3 million. Concurrently, imports of $46.67 billion were imported.This information demonstrates that Bangladesh exports more items to Russia than it imports. This indicates that Bangladesh has a trade surplus. However, it is unclear how Russia plans to balance this additional import with Bangladesh through a currency swap. The main problem is not import-export. With high-interest loans from Russia, Bangladesh is placing strategic initiatives into action, such as the Rooppur Nuclear Power Plant and the Bangabandhu Satellite-2. As a result, this system of checks and balances may empower Bangladesh to complete its additional export revenue.
The currency exchange process between Bangladesh and India has stumbled into the same issue. Rupee-based trade between Bangladesh and India is not a brand-new endeavor. About nine years ago, the Reserve Bank of India took the initiative to conduct such a rupee exchange for cash with Bangladesh. India established a policy of exchanging rupees with these nations in addition to Bangladesh: Vietnam, Russia, Thailand, Malaysia, Turkey, and Mexico.However, it has been disappointing that initiatives to trade in rupees with countries other than Iran and Japan have not been particularly potent.Data from the Export Promotion Bureau indicate that $16.19 billion in chemicals, cotton, yarn, and capital equipment were imported from India in the fiscal year 2021-2022. On the other hand, Bangladesh only exports $2 billion to its neighbor. Therefore, Bangladesh will have to pay the remaining $10 billion in rupees if it undertakes a currency swap. Nonetheless, Bangladesh is unaware of any particular source of rupee from which to handle it.
Due to the balance of bilateral trade, Russia and India swapped such cash for a significant amount of fuel. It is challenging to gain much profit by exchanging rupees, rubles, or yuan because Bangladesh does not have a positive trade balance with China, Russia, or India. It will be necessary to connect with Bangladesh's alternative payment system to achieve that. There is a significant risk there. Before this, our money has been looted from a safe system like SWIFT. Major worry exists!
It might take several years to conduct trade in the yuan, rupee, taka, and ruble, according to Dr. Ahsan H Mansoor, executive director and chief economist of the Policy Research Institute of Bangladesh (PRIB). Despite these restrictions, Bangladesh Bank can begin this process right away. However, it must be conducted with sufficient expertise and a sound strategy.Otherwise, it will be void.
In order to lessen the overall pressure on the dollar, many economists have also advised trading in a third currency in contrast to currency swaps or creating a new bilateral financial system.
The writer is student, Department of Economics, University of Chittagong
