Bangladesh Bank, the central bank of Bangladesh, has announced plans to introduce trade transactions denominated in Indian rupees. This move is part of the country’s efforts to reduce its reliance on the US dollar and strengthen its foreign exchange reserves.
Currently, most trade between Bangladesh and India is conducted in dollars. This can be costly for businesses, as they have to exchange their local currency for dollars before making a payment. Using rupees instead would eliminate this exchange cost, making it cheaper for businesses to trade with each other.
The use of rupees would also help to strengthen economic ties between Bangladesh and India. India is Bangladesh’s largest trading partner, and the two countries have a long history of economic cooperation. Using a common currency would make it easier for businesses in both countries to do business with each other.
Bangladesh Bank has said that it will work with banks in both countries to develop a mechanism for settling trade transactions in rupees. The exchange rate between the rupee and the taka will be determined on a cross-currency basis.
The introduction of trade transactions in rupees is expected to have a number of benefits for Bangladesh. It will help to reduce the country’s reliance on the dollar, strengthen its foreign exchange reserves, and make it cheaper for businesses to trade with India. It will also help to strengthen economic ties between the two countries.
Benefits of Using Rupees for Trade
There are a number of benefits to using rupees for trade between Bangladesh and India. These include:
- Reduced exchange costs: Businesses would no longer have to exchange their local currency for dollars before making a payment. This would save them money on exchange fees.
- Simplified documentation: Trade transactions in rupees would be simpler to document, as there would be no need to convert the amounts into dollars.
- Increased trade volume: The use of rupees could lead to increased trade volume between Bangladesh and India. This is because businesses would find it easier and cheaper to trade with each other.
- Strengthened economic ties: The use of rupees would help to strengthen economic ties between Bangladesh and India. This is because it would make it easier for businesses in both countries to do business with each other.
Challenges of Using Rupees for Trade
There are also some challenges to using rupees for trade between Bangladesh and India. These include:
- Currency volatility: The value of the rupee is not as stable as the dollar. This could make it more difficult for businesses to forecast their costs and revenues.
- Lack of liquidity: The rupee market is not as liquid as the dollar market. This could make it more difficult for businesses to find buyers or sellers for their rupees.
- Political risk: There is always the risk that political changes in either country could disrupt trade. This is a risk that businesses would have to factor in when deciding whether to trade in rupees.
Conclusion
The introduction of trade transactions in rupees is a positive step for Bangladesh. It has the potential to reduce the country’s reliance on the dollar, strengthen its foreign exchange reserves, and make it cheaper for businesses to trade with India. However, there are also some challenges that businesses will need to consider before deciding whether to trade in rupees.
Overall, the use of rupees for trade between Bangladesh and India has the potential to be a win-win for both countries. It would make it easier and cheaper for businesses to trade with each other, which would boost economic activity and create jobs. It would also help to strengthen the economic ties between the two countries.