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    India-Bangladesh Trade to Switch Away from the US Dollar

    CountriesBangladeshIndia-Bangladesh Trade to Switch Away from the US Dollar
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    India-Bangladesh Trade to Switch Away from the US Dollar

    The decision was made in the run-up to the recent visit of Bangladeshi Prime Minister, Sheikh Hasina to New Delhi. The gesture is sure to draw Bangladesh closer to India and is part of Prime Minister Modi’s neighbourhood first policy.

    The State Bank of India has asked exporters to henceforth settle trade deals with Bangladesh in either the Indian rupee or in the Bangladeshi Taka rather than in US dollars, as has been the practice so far. This is being done to shield Bangladesh’s economy from the impact of its falling dollar reserves.

    India’s largest public sector bank’s missive to its branches says that they must avoid settling deals with Bangladesh in the dollar or in other major currencies.

    This is a big breather for Bangladesh. The country’s foreign exchange reserves had declined to $37 billion on Friday – from $48 billion a year ago. The higher import bills have made the dollar dearer – and the Bangladeshi Taka much weaker.

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    Political ramifications

    The dwindling foreign exchange and rising prices, particularly inflated food and fuel prices has been a sour point in Bangladesh, especially in the aftermath of the Russia-Ukraine war. The political ramifications from a pressurized economy has fuelled Hasina’s political opponents in the Bangladesh National Party (BNP). It is no secret that India is more comfortable doing business with Sheikh Hasina and her Awami League part rather the BNP.

    The decision was made in the run-up to the recent visit of Bangladeshi Prime Minister, Sheikh Hasina to New Delhi. The gesture is sure to draw Bangladesh closer to India and is part of Prime Minister Modi’s neighbourhood first policy.

    This is also in keeping with India’s stance in Sri Lanka after an economic crisis imperilled the island nation. Memories of the empty shelves at supermarkets, long queues at fuel outlets and agitators taking over the presidential palace have not faded.

    India’s policy to be of help to its immediate neighbours also throws the spanners in the way of aggressive economic expansion by China in the region.

    Nepal too is in the doldrums, but it has a pressure valve – a long-standing agreement to trade with India in the Indian Rupee.

    And China’s closest ally in the region, Pakistan, is also in a crisis – fighting to stave a dire economic collapse and floodwaters, almost in the same breath.

    India’s helping hand from also gives Bangladesh some leeway in its negotiations with the International Monetary Fund (IMF) from which Bangladesh wants to borrow US $4.5, way above its entitlement.

    In the meanwhile, inward remittance worth over $1.0 billion US dollars arrived in Bangladesh during the first 15 days of September. Bangladesh had received remittances of $2.09 billion in July and $2.03 billion in August.

    The inflow remittance is possibly due to the depreciation of the Taka as a US dollar got over 103 Takas on Monday. The government expects the remittance inflow to cross $2.0 billion by end-September.

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