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Problems and prospects for Rupee-Taka trade

Published : Monday, 17 July, 2023 at 12:00 AM  Count : 2731
M A Masum
The US dollar is the most potent currency in the world today and is the world's leading reserve currency. About 90 per cent of the world's total economic transactions are conducted through US dollars. According to estimates, there is currently around 1.8 trillion US dollars worth of paper and metal currency circulating worldwide. The US dollar is almost essential for international trade.

After the outbreak of the Russia-Ukraine war in February last year, payments for international goods and services have been affected because of a dollar shortage in many countries and the ban on the use of global payments network SWIFT while settling transactions with Russia. Bangladesh, a major player in international trade, is also facing a shortage of the US dollar as its foreign exchange reserve level has plunged amid higher import bills against moderate remittance and export receipts. Exchange rates of currencies of almost all countries that use dollar for international payments have been adversely affected.  

That is why many countries of the world have started to think who to reduce excessive dependence on dollars in international trade. Negotiations to denominate import and export trade between Bangladesh and India in taka and rupee have been going on for almost a decade. When the rupee tumbled against the dollar in 2013, there was still talk of a rupee-rupee transaction. Finally, Bangladesh and India on July 11 this year launched a much-anticipated trade transaction in rupees, a move aimed at reducing dependence on the US dollar and strengthening regional currency and trade. The State Bank of India's Bangladesh operations, Sonali Bank and Eastern Bank have opened special rupee accounts with two Indian banks: SBI's international services branch in Mumbai and ICICI Bank.

Bangladeshi exporters will receive their proceeds in rupee in those accounts and that balance would be used to pay for the imports from India. In short, import bills equivalent to the export proceeds can be settled under the mechanism. The exchange rate used would be market-determined. At the same time, From September, India and Bangladesh will open LCs for import and export, using the Indian rupee and Bangladeshi taka. Until now, rupee was converted into dollar, and that was converted again into rupee; the same was done with taka.

The Bangladesh Bank will also introduce a debit card dubbed the "Taka Pay Card" at the same time which will enable customers to withdraw either rupees or taka.  People who travel to India will have the facility of paying through this card. Bangladeshi people going for treatment, students, and businessmen will benefit from this system, and they can avoid using the US dollar.

As part of the efforts, the Reserve Bank of India has put in place a mechanism to settle international trade in rupees. The RBI has allowed banks from 18 countries to settle payments in the rupee, including Sri Lanka, Israel, Russia, Germany, Singapore and the UK. The Bangladesh Bank has now joined the fray.

The borrowers would be able to pay for domestic purchases with taka with the benefit of spending in Indian rupees up to $12,000 in rupees while visiting India. The exchange rate will be calculated from Taka to Rupee or Rupee to Taka. 6 per cent conversion expenditure loss will be saved as there is no need to convert taka to dollar and then dollar to rupee. This will benefit millions of Bangladeshi people visiting India for various purposes including medical care, tourism, and religious reasons.

According to the latest official data from Dhaka, in fiscal 2022-23, Bangladesh's exports to India stood at $2.02 billion, up 2.5 percent year-on-year, while imports stood at $12.2 billion, down 24.2 percent. Several economists, however, said Bangladesh may not be able to reap the benefits of the new system very quickly because of the trade deficit. It is clear from this figure, Bangladesh will get Rs. And in terms of imports, Bangladesh does not have the ability to pay the import price of more than two billion dollars in rupees at the moment. As a result, the remaining amount due to import will have to be paid in dollars.


Many economists believe that India wants to strengthen his currency in the international arena. The reality is that Indian currency rupee is not an internationally recognized reserve currency. However, if the use of this currency increases in bilateral trade, the acceptance of the Indian currency will increase and demand for the Indian rupee will increase in Bangladesh. India's rupee trading trend is steadily increasing.

Experts in the banking sector say that transactions in Indian rupees will not benefit Bangladesh. There is a danger of reaching a one-sided currency or rupee-based exchange structure. Since Bangladesh is facing a major trade deficit with India, the country may be at risk in dealing with rupee. Because, once the process starts, it will not only be limited to commodity trade, but will also spread to travel, medical, education etc. There should not be a situation like taking a loan of rupees from an Indian bank to meet the import expenses. In that case, the burden of interest expenses will increase. Again, there is a fear that India will increase the rate of rupee against the Bangladeshi currency from time to time. India has many products whose raw materials it has to import from other countries in dollars. Exporters can charge higher prices to export such products to Bangladesh. This transaction will become risky for the businessmen of Bangladesh.

India's import-export account is completely opposite to that of the United States. Bangladesh imports five to six times more than what it exports to the Indian market. While the US market is the source of dollar income, the Indian market is where our dollar spend is. Bangladesh imports 7-8 billion dollars from India against the export of 100 billion dollars. So the question is what is the source of the rupee against at least six billion dollars in trade imbalance? That means, only 2 billion dollars can be transacted in terms of trade between Bangladesh and India in taka-rupees. Bangladesh should be prepared to pay India the rest in other reserve currencies.

In addition, hundreds of thousands of Indian workers work in the labor market of Bangladesh and take remittances. Bangladeshis also go to India with dollars for medical treatment, travel, shopping and other purposes. All in all, a large part of Bangladesh's earned dollars goes to India legally or illegally. So what is the legitimate way to earn Rs. Here Bangladesh has to activate standard or international standard trade diplomacy to earn Rs.

Hence, Bangladesh, like many other countries, has been interested in diversifying its reserves and trading in local currency. Because, every dollar is important to keep the wheels of the economy of Bangladesh running during the ongoing global crisis. And as a result of trading in rupees, this reserve will save about 2 billion dollars. Also being convenient and cost-effective, the process will facilitate trade, which will contribute to strengthening economic ties between the two neighbors.

The writer is a Banker & Economic Analyst



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