Bangladesh Bank’s efforts to settle cross-border transactions with Chinese currency yuan will help reduce the US dollar crunch that Bangladesh is facing with the greenback seeing a big appreciation against taka, experts said.
The central bank of Bangladesh on Thursday issued a notification allowing commercial banks to maintain accounts in Chinese yuan or CNY with their correspondents or overseas branches for cross-border transactions executed in Bangladesh.
The financial market regulator also asked all the authorised dealers (AD) banks for foreign exchange to follow the switch.
The central bank initiative came amid a heavy rise in dollar price against taka making the foreign exchange market volatile and triggering price spiral of commodities, particularly imported goods.
Dollar prices even rose up to taka 120 in kerb market. A unit of US dollar is being traded at taka 106.9 in the interbank money market, at taka 108 in remittance transactions and taka 99 in export, against taka 84.8 just a year ago.
Experts said that apart from easing the dollar crunch, the new initiative will have a positive impact on the overall economy of the country through enhanced trade covering both exports and imports among countries.
“The BB initiative will widen the option for traders to use currencies which will help increase trade,” said Dr Zahid Hussain, former lead economist of the World Bank, while talking to the Bangladesh Post.
An economist said if the same arrangement can be introduced with the Indian rupee and Russian rouble can, it will immensely ease the currency debacle in the future and will contribute to the ease of doing business.
A senior BB official said the central bank’s initiative will help reduce dependence on the greenback in Bangladesh, as the country struggles to tackle price rises of the US unit.
“Before this new arrangement, businessmen had to keep yuan in the central bank account. As a result, businessmen face difficulties in using that currency. Now they can deposit yuan in their accounts with commercial banks,” he mentioned.
Syed Mahbubur Rahman, former chairman of Association of Bankers Bangladesh (ABB) and managing director of Mutual Trust Bank, said, “If the use of different currencies in both trade and banks is taken forward, there will be diversity in foreign trade. Taking such steps will reduce over-dependence on the single foreign currency dollar for opening and settlement of letters of credit (LC).”
Earlier on August 14, 2018, the central bank allowed the AD banks to open foreign-currency clearing accounts with the BB in CNY on the same grounds.
The banks had earlier been allowed to maintain foreign-currency clearing accounts with the central bank in US dollar, pound sterling, Euro, the Japanese yen, Canadian dollar, Australian dollar and Swiss franc.