Initiative yet to gain significant traction

Bangladesh needs to prioritise expanding its export markets before fully adopting local-currency settlements in external trade, according to a recent report by Bangladesh Bank (BB).
The special study titled "Trading in Local Currencies: Problems and Prospects for the SAARC Countries," was led by Dr. Sayera Younus, Executive Director (Research) at Bangladesh Bank.
In mid-2023, Bangladesh and India initiated the settlement of bilateral trade in Indian rupees (INR) to reduce over-dependence on the US dollar.
However, insiders at the central bank indicated that the initiative is yet to gain significant traction among traders.
On July 11 last year, India and Bangladesh officially launched cross-border trade settlements in Indian rupees as part of efforts to lessen reliance on the US dollar.
Between July and December 2023, two banks facilitated transactions worth 3.51 million rupees which is much lower than the bilateral trade between the two countries.
And, Bangladesh continues to face a huge trade deficit with India and encounters challenges in using the rupee, including high demand for US dollars and limited rupee earnings.
The study report highlights that trading in local currencies can serve as an effective tool to promote cooperation within the SAARC region.
However, the study emphasises the importance of regional initiatives, bilateral agreements, and private sector engagement to enhance local currency trade in SAARC.
"These measures aim to improve trading efficiency, reduce costs, and boost trade competitiveness and volumes by minimising currency conversion complexities," it notes.
It also underscores the need to shift exporter and importer attitudes through educational initiatives and capacity building to encourage the use of local currencies.
Additionally, the study stresses the importance of gradually relaxing capital flow restrictions to establish a secure trade settlement system.
"Tariff and non-tariff barriers among member countries should be reduced," the report suggests, adding that foreign exchange regulations should be adapted to promote the use of local and regional currencies in trade and investment.

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