Businesses yesterday welcomed Bangladesh Bank’s clearance to settle payments for international trade through Chinese yuan to cut excessive dependence on the US dollar but said implementation will be challenging.
To address issues related to currency conversion and the exchange rate between Bangladesh’s taka and yuan, one suggested dialogue with the Chinese central bank.
Bangladesh Bank on Thursday said local banks would be able to maintain accounts in Chinese yuan or renminbi with their corresponding lenders or branches abroad to enable local businesses to settle transactions for foreign trade using the currency.
The move comes more than one-and-a-half months after various chambers, such as the Metropolitan Chamber of Commerce and Industry, urged the central bank to allow multiple currencies for international trade settlements to cut Bangladesh’s over-reliance on the US dollar amid volatility and rising cost of the greenback.
The government had made Chinese yuan as a convertible currency in March 2014, a Bangladesh Bank official said.
“It is a good move as dependence on one currency is not good. We can understand the benefit later but the more options the better,” said Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association, which represents the biggest export earning sector.
Al Mamun Mridha, joint secretary general and spokesperson of the Bangladesh-China Chamber of Commerce & Industry (BCCI), said they have been talking about allowing trade settlement using yuan for the last couple of years.
Bangladesh’s annual imports from China amount to nearly $15 billion and local businesses have to pay 2-2.5 per cent when converting the domestic currency to US dollars for trade with the country.
“We are converting our taka to dollar and again converting dollar into taka,” he said.
Mridha said 40 countries have already completed currency swap deals with China, including nine neighbouring countries such as Vietnam and Kazakhstan.
He then said the central banks of these countries have settled the issue of adequate supply of yuan with the Chinese central bank and that Bangladesh could start a dialogue with China regarding the issue.
Now, the central banks of both the countries should start a dialogue on issues such as the exchange rate between Bangladesh taka and yuan and ensuring adequate availability of the yuan here.
“The faster we can do this the better. I see this thing as a progress and it was really needed at this point in time,” he said.
“We are working to attract Chinese investment here,” Mridha added.
The BCCI spokesperson went on to say the International Monetary Fund (IMF) added Chinese yuan or renminbi to the basket of currencies that make up the Special Drawing Right (SDR), along with US dollar, euro, yen, and British pound.
The SDR is an international reserve asset created by the IMF in 1969 to supplement its member countries’ official reserves.
MCCI President Md Saiful Islam said the US dollar has become dearer globally and from that perspective, dependence on a single currency would reduce for use of yuan.
Bangladesh also imports a lot of goods from India and so, the pressure of the greenback will reduce if the nation can go for currency swap with the neighbouring nation, he added.
Md Fazlul Hoque, former president of the Bangladesh Knitwear Manufacturers and Exporters Association, said Bangladesh Bank’s move seems like a good one.
“But practical implementation will be challenging,” he said.
However, Bangladesh’s exporters have to buy raw materials against export orders from China using the US dollar, he added.
Meanwhile, Hoque agreed that the step to cut the country’s dependence on single currency is good.
Still, things such as the exchange rate with yuan needs to be determined and bankers also need to change their mindset, he said. Bangladesh exports around $1 billion of goods to China whereas its imports around $15 billion annually.
“So, a little of the problem will be solved,” Hoque added.