The benefits and drawbacks of Taka-Rupee currency exchange
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Dr Susan Thomas
It is now time to begin bilateral trading in Bangladeshi Taka and Indian Rupee, in addition to US dollars. This is something that both nations agree on. The procedure is progressing quickly. The two nations are preparing to begin business transactions in taka-rupees in September. However, the formal announcement might come sooner.
What is a currency swap or exchange?
In financial terminology, a ‘currency swap agreement’ occurs when two nations deal with one other in their own currency rather than the dollar or another hard currency. Bangladesh, like many other nations throughout the globe, had a dollar crisis, initially as a result of Covid and subsequently as a result of the continuing Russia-Ukraine conflict.
Furthermore, import costs were rising. Bangladesh Bank takes several measures to regulate imports in response to this circumstance. Meanwhile, at the two countries’ commerce ministerial meeting in December last year in the Indian capital of Delhi, India made a verbal request to utilize the Bangladeshi taka and their rupee in bilateral commercial transactions. If the idea is implemented, import-export commerce between the two nations will be conducted through a currency swap system or by the exchange of own currency.
Present Status
The project is now becoming a reality. However, India made the effort to trade in taka and rupee with Bangladesh once, in 2013, ten years ago. Later on, the case was dropped. The governors of the two nations addressed this on the margins of the G-20 summit in Bengaluru, India, on February 24-25. The meeting of the two nations’ senior leaders in September, rather than next June, is expected to kick off the bilateral trade process in taka-rupee.
The Reserve Bank of India (RBI), India’s central bank, has already abolished existing legal hurdles to overseas transactions in Indian currency. The country’s finance ministry also recommended trade groups and banks to do business in rupees with other nations. India has already begun to conduct rupee trade with Mauritius, Iran, and Sri Lanka. They intend to boost the rupee’s value on the foreign market. For this, the nation has begun talks not just with Bangladesh, but also with a number of other countries, including Russia. For the time being, transactions will be initiated by four banks from two different nations. As a result, Bangladesh’s Sonali and Eastern Bank, as well as India’s State Bank of India (SBI) and ICICI Bank, have begun the process of establishing mutual accounts.
What are the benefits
Bangladesh bought commodities totaling $8 thousand 916 million US dollars in fiscal year 2021-22, according to a statistic of Bangladesh Bank. One thousand three hundred million dollars’ worth of products are imported from India.
Bangladesh exported items totaling $200 million to India during the same fiscal year. In other words, total import and export commerce between the two nations is 1 billion 568 million dollars. Bangladesh is in close proximity to the present geopolitical crisis. Russia, China, and India are all gradually abandoning the dollar.
We must also consider alternatives to the currency. What’s wrong with starting our $200 million dollar export to India with rupees?
The government would be able to import critical commodities from other nations with the $200 million dollars saved through transactions in rupees. This will help both nations. Because the deal is limited to 200 million, there will be no danger.
The cost of frequent currency conversion will be decreased since these transactions would be based on bilateral talks. Bangladesh may benefit from lower exchange rates.
Furthermore, habitual travelers from Bangladesh to India find it to be a cost-effective option. If a Bangladeshi travels to India, he must endorse dollars in his passport. Those dollars must be translated into rupees before they may be used in India. Travelers reported losing money twice as a result of currency exchange. In recent months, the US dollar exchange rate in Bangladesh has fluctuated between Tk 106 and Tk 110.
As a result, the cost of purchasing one hundred dollars ranges between 10,600 and 11,000 taka. Indian rupees ranging from eight thousand two hundred to eight thousand three hundred may be exchanged for these 100 USD. However, if this transaction were done directly in taka and rupee, the same number of taka would receive around 13 thousand to 14 and a half thousand Indian rupees. That is a significant difference.
The Drawbacks
To begin with, the rupee is not regarded as a worldwide currency. Furthermore, there is a risk of achieving a one-sided currency or rupee-based exchange arrangement. In addition, Bangladesh has a significant trade imbalance with India. As a result, trading in rupees may put Bangladesh at danger. Because, once the process begins, it will affect not just commodities trading, but also travel, medical, and education. It should not be necessary to borrow rupees from an Indian bank to cover import charges. The weight of interest charges will rise in such circumstance.
Again, there is concern that India may periodically raise the rupee’s exchange rate against the Bangladeshi taka. India imports raw materials in dollars from foreign nations for a variety of goods.
Exporters may charge greater costs for such items when shipping them to Bangladesh. This deal would become perilous for Bangladeshi businesses.
There is no such thing as an unmixed gift on the planet. Everything has advantages and disadvantages. Similarly, this currency exchange offers advantages and disadvantages. India is Bangladesh’s nearest neighbor, with regular people migration, and one of its main commercial partners. Given the present global environment of depleting reserves, this currency exchange plan might be a promising start for Bangladesh.
It is now time to begin bilateral trading in Bangladeshi Taka and Indian Rupee, in addition to US dollars. This is something that both nations agree on. The procedure is progressing quickly. The two nations are preparing to begin business transactions in taka-rupees in September. However, the formal announcement might come sooner.
What is a currency swap or exchange?
In financial terminology, a ‘currency swap agreement’ occurs when two nations deal with one other in their own currency rather than the dollar or another hard currency. Bangladesh, like many other nations throughout the globe, had a dollar crisis, initially as a result of Covid and subsequently as a result of the continuing Russia-Ukraine conflict.
Furthermore, import costs were rising. Bangladesh Bank takes several measures to regulate imports in response to this circumstance. Meanwhile, at the two countries’ commerce ministerial meeting in December last year in the Indian capital of Delhi, India made a verbal request to utilize the Bangladeshi taka and their rupee in bilateral commercial transactions. If the idea is implemented, import-export commerce between the two nations will be conducted through a currency swap system or by the exchange of own currency.
Present Status
The project is now becoming a reality. However, India made the effort to trade in taka and rupee with Bangladesh once, in 2013, ten years ago. Later on, the case was dropped. The governors of the two nations addressed this on the margins of the G-20 summit in Bengaluru, India, on February 24-25. The meeting of the two nations’ senior leaders in September, rather than next June, is expected to kick off the bilateral trade process in taka-rupee.
The Reserve Bank of India (RBI), India’s central bank, has already abolished existing legal hurdles to overseas transactions in Indian currency. The country’s finance ministry also recommended trade groups and banks to do business in rupees with other nations. India has already begun to conduct rupee trade with Mauritius, Iran, and Sri Lanka. They intend to boost the rupee’s value on the foreign market. For this, the nation has begun talks not just with Bangladesh, but also with a number of other countries, including Russia. For the time being, transactions will be initiated by four banks from two different nations. As a result, Bangladesh’s Sonali and Eastern Bank, as well as India’s State Bank of India (SBI) and ICICI Bank, have begun the process of establishing mutual accounts.
What are the benefits
Bangladesh bought commodities totaling $8 thousand 916 million US dollars in fiscal year 2021-22, according to a statistic of Bangladesh Bank. One thousand three hundred million dollars’ worth of products are imported from India.
Bangladesh exported items totaling $200 million to India during the same fiscal year. In other words, total import and export commerce between the two nations is 1 billion 568 million dollars. Bangladesh is in close proximity to the present geopolitical crisis. Russia, China, and India are all gradually abandoning the dollar.
We must also consider alternatives to the currency. What’s wrong with starting our $200 million dollar export to India with rupees?
The government would be able to import critical commodities from other nations with the $200 million dollars saved through transactions in rupees. This will help both nations. Because the deal is limited to 200 million, there will be no danger.
The cost of frequent currency conversion will be decreased since these transactions would be based on bilateral talks. Bangladesh may benefit from lower exchange rates.
Furthermore, habitual travelers from Bangladesh to India find it to be a cost-effective option. If a Bangladeshi travels to India, he must endorse dollars in his passport. Those dollars must be translated into rupees before they may be used in India. Travelers reported losing money twice as a result of currency exchange. In recent months, the US dollar exchange rate in Bangladesh has fluctuated between Tk 106 and Tk 110.
As a result, the cost of purchasing one hundred dollars ranges between 10,600 and 11,000 taka. Indian rupees ranging from eight thousand two hundred to eight thousand three hundred may be exchanged for these 100 USD. However, if this transaction were done directly in taka and rupee, the same number of taka would receive around 13 thousand to 14 and a half thousand Indian rupees. That is a significant difference.
The Drawbacks
To begin with, the rupee is not regarded as a worldwide currency. Furthermore, there is a risk of achieving a one-sided currency or rupee-based exchange arrangement. In addition, Bangladesh has a significant trade imbalance with India. As a result, trading in rupees may put Bangladesh at danger. Because, once the process begins, it will affect not just commodities trading, but also travel, medical, and education. It should not be necessary to borrow rupees from an Indian bank to cover import charges. The weight of interest charges will rise in such circumstance.
Again, there is concern that India may periodically raise the rupee’s exchange rate against the Bangladeshi taka. India imports raw materials in dollars from foreign nations for a variety of goods.
Exporters may charge greater costs for such items when shipping them to Bangladesh. This deal would become perilous for Bangladeshi businesses.
There is no such thing as an unmixed gift on the planet. Everything has advantages and disadvantages. Similarly, this currency exchange offers advantages and disadvantages. India is Bangladesh’s nearest neighbor, with regular people migration, and one of its main commercial partners. Given the present global environment of depleting reserves, this currency exchange plan might be a promising start for Bangladesh.