Conducting trade in local & common currencies

Bypassing international currencies is a common talk following the global supply chain disruption due to the Russia-Ukraine war. De-dollarisation becomes an issue when sanctions are imposed on different countries to execute transactions in US dollar. Reports indicate Russia and China along with like-minded countries are using alternative platforms to execute transactions in local currencies.
Currencies are proxies for trade in goods and services. Country 'A' sells goods to country 'B' in its currency. Country 'A' can use this currency to buy goods from country 'B'. The country's account entry remains in the books of counterpart banks. There are challenges to execute transactions in local currencies. Double coincidences are needed. One needs to buy something before selling something. Otherwise, waiting is required till the 'buy' occurs. No such situation will arise if the currency can be acceptable to other countries.
There are few currencies in the world acceptable to all. Currencies are money in generic terms. Money is an instrument to facilitate transactions by phasing out barter system. Since its invention, there were different items used as money. The paper became money supported by gold during gold standard. With the phase-out of gold standard, dollar-gold exchange standard came into existence as per the consensus at Bretton Woods conference in 1944. Under the system, currencies of different countries are pegged with US dollar which is pegged with gold. It lasted for around two and a half decades. Once in the 1970s, US treasury closed the door of gold. Non-system started therefrom with de facto petrodollar system. With the mechanism initiated by Wall Street bankers, fuel as strategic goods started selling in US dollar. The proceeds are deposited in US markets, and are recycled globally. Wide and deep markets with innovative financial products in US have kept dollar buoyant till now. It has become acceptable currency globally. In addition to US dollar, British pound dominates global transactions to a moderate scale. Japanese yen is found at the same level. At the beginning of the current century, excepting few currencies, Europe adopted a single currency known as Euro. It should have overtaken US dollar but in reality it cannot do such a role.
Common currency within a region can phase out many problems, including dominance of few currencies. Euro was established to create a common market for Europe, though few countries retain their currencies. There are certain parameters under which monetary cooperation among countries is maintained with supervision by the European Central Bank (ECB). Each member country needs to maintain a set level of debt-GDP ratio, monetary base, among others. Of the Eurozone, Germany is a leading exporter. Once they earned foreign currencies such as francs, guilders, lira, etc. With the phase-out of different currencies, exports are executed in euro. Germany does not need to use the currency for imports from the eurozone. In this situation, they would face overflows of local currency which could bring inflation. But they are in a better position since euro has the ability to play the role of global currency to a certain level. It can be placed and used in other locations.
Let us think that taka and different currencies of South Asia want a common currency known as TaRu. What will be its impact on trade among member countries? In this case, different criteria such as debt-GDP ratio, monetary base, the limit for TaRu printing etc. are required to be maintained in accordance with agreements. Bangladesh is a net importing country. It can use its TaRu to buy from members. In addition, travel expenses for visiting member countries can be made by TaRu. Money used there needs to be counter-used either by way of buying goods and services or reciprocal travels. These are all positive signs for countries in deficit. A common currency can help to make a natural balance. But there is another side. Since TuRu is not useable for transactions other than with members, net exporter countries will not be benefited. This is a loss game for them. Will they agree to join the common currency area? This is a question which requires attention. The answer can be positive provided that TaRu can be made useable at least to some extent in non-member countries. This is possible through the establishment of a common financial hub facilitating currency transactions with financial instrumental advantages.
Without a common currency, local currencies are used for trade. These currencies are semi-king currencies such as Swiss francs, Canadian dollar, Australian dollar, Hong Kong dollar, UAE dirham etc. These are well traded currencies having financial instruments for investment. But what about other currencies like ours is a question. Barter trade is the oldest mode of transactions. It was replaced by precious metals like gold. It means that goods are shipped against inflows of gold. Later, money is in circulation against gold. With the phase-out of gold standard, few currencies including dollar became dominant in international transactions.
Barter trade has been phased out. But it remains in place in different forms such as counter trade, account trade, bilateral trade etc. Local currencies are used for the settlement of trade under the respective framework agreements. But settlement does not end the deal unless another trade is executed. It means that a country exports and receives payments in local currency. The same country imports from counterpart country by export proceeds. The framework is set in such a way to the effect that export is equal to import. We can look back to the proposed currency TaRu. In that proposition, we have seen equivalent transactions executed to squire the monetary position; this is required due to non-useability of TaRu in other countries. Hence, the scope of transactions in local currencies is limited.
In a recent piece by John Ross, it is argued that fundamental issues in "de-dollarisation" are not technical but economic. Technical issues in cross-border transactions are related to the transfers of messages. Except the SWIFT, there are many other alternatives. A media report indicates that a Chinese bank using an alternative messaging channel stopped transactions in local currencies between Moscow and Shanghai. It clearly shows that bypassing dollar is not a technical issue, rather it is economic as well as geopolitical cases. Since long dollar is in global strength. It is positioned at such a level because of having different eco-political criteria.
Bangladesh is still in a developing stage. The present level can be compared to a family depending on EMI (equal monthly installment) for purchases of durables. Our economy needs settlement of import transactions depending on the capability of EMI payments. Hence, income flows from external sources need to be enhanced. There is no alternative other than export of goods and services. New goods and services need to be incorporated in export basket. Policy supports are required to bring in new products for export. It is rarely possible to bring stability to transactions with external sectors without an increment in income from exports. Let us focus on it with appropriate policy supports.

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