Bangladesh and India have begun formal discussions on bilateral currency-swap arrangement in cross-order trade transitions, sources say.
Although the high-profile initiative to settle portion of bilateral trade in Indian Rupee (INR) had launched in July 2023, not through taka-rupee swap, struggled to gain traction due to a significant trade imbalance and availability of limited INR liquidity, they added.
The proposed swap mechanism is now being treated as a top-tier policy priority, in the wake of world trade disruption and foreign-exchange constraints.
By bypassing the traditional greenback-intermediated route, the move aims to ease the mounting pressure on foreign- exchange reserves while providing much-needed relief to importers and exporters facing LC (letter of credit)-opening hurdles.
The proposal, highlighted during a meeting between Commerce Minister Khandakar Abdul Muktadir and Indian High Commissioner in Bangladesh Pranay Verma in Dhaka earlier this month, aims to decouple regional trade from its heavy reliance on the third-party currencies.
The proposed arrangement would allow for the direct exchange of Bangladeshi Taka and the Indian Rupee (INR), they also said.
According to diplomatic channels, the High Commissioner emphasized three primary pillars of the deal: trade facilitation, reduced dependency, and financial stability.
Contacted for an update on the move, a senior official of the commerce ministry said the arrangement is expected to simplify bilateral trade by settling transactions in local currencies, lowering the demand for third-party currencies, like the USD, which often adds layers of cost and exchange-rate risk and strengthening the resilience of both nations' financial systems against global market volatility.
A standout feature of the discussions is the planned integration of digital payment systems. The High Commissioner pointed to India's Unified Payments Interface (UPI) as a potential blueprint for streamlining cross-border transactions.
"The integration of digital payment systems could further streamline cross-border transactions, enhance transparency, and improve efficiency."
By merging local-currency swaps with digital infrastructure, both nations aim to create a "seamless and cost-effective" trade environment that benefits everyone from large-scale exporters to individual travellers.
Beyond ease of doing business between the two next-door neighbours, the move is a strategic win for national treasuries. By trading in taka and rupees, both countries can conserve precious foreign-exchange reserves.
In response to the proposal, the minister for commerce welcomed the initiative in the meeting, assuring that the matter has been conveyed to the relevant authorities for necessary consideration and follow-up.
If finalized, this swap agreement could serve as a model for regional economic integration in South Asia, reducing transaction costs and fostering a more self-reliant trade corridor.
Trade experts say the move could significantly reduce dependence on global reserve currencies like the US dollar, shielding both economies from external shocks.
Settling transactions in local currencies would make trade "more predictable and cost-efficient, especially for small and medium-sized enterprises".
They have also highlight that the inclusion of digital platforms such as UPI could be transformative. By enabling real-time payment, UPI integration may reduce delays, increase transparency, and curb informal channels of money transfer.
Trade specialists believe the swap arrangement could unlock untapped trade potential between the two countries. Lower transaction costs and simplified settlement processes may encourage exporters and importers to expand operations, particularly in sectors like textiles, agriculture, and pharmaceuticals.
Prioritizing a strategic shift to mitigate the ongoing dollar crunch, the new BNP-led government should try to discuss with the relevant authorities concerned about the proposed "Currency Swap" agreement with India to revitalize bilateral trade settlement, they noted.
Meanwhile, such alternative payment systems are already emerging, such as the Renminbi - centric cross-order interbank payment system or CIPS.
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