India, among the world’s fastest-growing economies, has made using the rupee in international transactions a key part of its 2023 policy on foreign trade which was unveiled on March 31.
Officials said India is ready to trade in its currency with countries that are facing a shortage of US dollars amid a slowdown in global trade.
Global trade was worth a record US$32 trillion (S$43 trillion) in 2022, but growth is set to stagnate in the first half of 2023 on the back of geopolitical tensions and concerns about inflation and high commodity prices – especially for energy, food and metals, according to the Global Trade Update, published by the United Nations Conference on Trade and Development in March.
Mr Mezbaul Haque, executive director and spokesman for Bangladesh Bank, the country’s central bank, told The Straits Times from Dhaka that the move will benefit traders of both countries.
“We have agreed in principle (for rupee transactions) and now we are working on the procedures,” he said.
“It will take a couple of months (to operationalise) because permission is required from the central bank to open an account for traders. Definitely, this will reduce the transaction cost for business, so that will encourage traders to do more business.”
India-Bangladesh trade in 2021-2022 was US$18.2 billion.
Bangladeshi banks will set up a rupee account, known as a vostro account, with Indian banks, while Indian banks will do the same with Bangladeshi banks. This will enable Indian traders to receive and give rupee payments through these accounts. Similarly, Bangladeshi traders can also use its currency, taka, for trade.
The Bangladesh-India rupee trade agreement comes close on the heels of Malaysia agreeing to conduct trade with India using the rupee.
The Union Bank of India has opened a special rupee vostro account with the India International Bank Malaysia (IIBM), and said in a statement that this will “help achieve better pricing for goods and services traded” and save on currency conversion.
Similarly, IIBM has opened a special rupee vostro account with the Union Bank of India, the Indian High Commission in Kuala Lumpur said in a press release.
Bilateral trade with Malaysia, the third-largest trading partner of India in Asean, was US$19.4 billion during 2021 to 2022.
