The proposed Bangladesh-Russia currency swap to maintain transactions worth around $1 billion between the two countries poses complications for Dhaka, economists and bankers have said.
As the trade balance between the two countries has been nearly equal for both sides, the proposed currency swap would be feasible, they said on Wednesday, amid Dhaka’s banks facing problems maintaining transections with sanctioned Russian banks.
The implementation of the proposed currency swap means that Bangladeshi and Russian banks will be able to exchange taka and ruble to maintain bilateral trade, bypassing the traditional payment system which relies on a third currency.
Economists and bankers have warned, however, that the government should examine the political and trade implications of such a deal with Russia, which faces sanctions from Western countries following its invasion of Ukraine since February 24.
According to the chief economist of the Bank of Bangladesh, Habibur Rahman, the issue is very sensitive with regard to the country’s foreign trade policy.
However, he did not elaborate on the ramifications of such an exchange for the country’s foreign trade which stood at over $100 billion in the 2020-2021 financial year.
Any action taken by a country that undermines the bans imposed on Russia puts the country at risk of facing trade barriers from Western countries, economists have said.
Bangladesh is not immune to such risks, noted the former chief economist of the World Bank office in Dhaka, Zahid Hussain.
As of December 11, 2021, former Rapid Action Battalion Director General Benazir Ahmed, now Inspector General of Police, and five other serving and former RAB officials are ineligible for entry into the United States. United because of the sanctions imposed on them due to human rights violations.
European Union countries, which are the main buyers of the country’s heavily apparel-dominated exports, have recently been more vocal about the labor and human rights situation in the country as regarding the entry of its items into EU markets under its zero-duty trade facility. .
In 2020-2021, Bangladesh exported a total of $45 billion worth of goods, with about 43% going to European countries including Germany, UK, France, Spain and the Netherlands .
The United States, however, was the country’s top export destination for FY21, with the country receiving 17.99% of the total volume, according to data from the Export Promotion Bureau.
Zahid Hussain said the government should make a wise decision on the currency swap project with Russia, as Bangladesh’s overall foreign trade with Western countries is much higher than with Russia.
In 2018-2019, Bangladesh exported $548.26 million in goods to Russia against $653.05 million in imports from that country, according to the Bangladesh Embassy in Moscow.
Bangladesh mainly exports garments, jute, frozen foods, tea, leather, home textiles and ceramic products to Russia, while it imports products such as grains, minerals, chemicals, plastic products, metals, machinery and mechanical equipment of this country.
The issue of the currency exchange has been in the spotlight after Finance Minister AHM Mustafa Kamal highlighted the possibility of such an exchange while answering questions from the media on March 3, a day after Belgium-based SWIFT , one of the world’s leading banking transaction facilitation systems, has excluded seven Russian banks from its services.
The banks are VTB Bank, Bank Otkritie, Novikombank, Promsvyazbank, Rossiya Bank, Sovcombank and Bank for Development and Foreign Economic Affairs, also known as VEB.
Bangladesh has faced problems in maintaining transactions with Russia after the VEB advised state-owned bank Sonali to suspend transactions on the Rooppur nuclear power plant, implemented in Ishwardi at a cost of 1,13,092.91 crore Tk since 2015-2016, largely with loans from Russia.
On November 11, 2021, the BB reportedly accepted a government proposal to sign a currency swap agreement with Russia to strengthen trade relations between the two countries.
On March 13, BB spokesman Serajul Islam said there were no other significant developments on the matter as the proposed trials had not yet started.
He also said that the purpose of the currency swap with Russia was not the same as the swap deal Bangladesh signed with Sri Lanka.
Under the agreement with Sri Lanka, he received a $200 million credit from Bangladesh and would repay the loan in one year with interest.
Economists, citing international reports, said the volume of currency trading had grown over the years to account for nearly half of the entire global forex market.
According to 2019 data from the Bank for International Settlements, FX swaps have emerged from the dark corners of the derivatives world and have garnered broader investor interest.
In 2018, Iran’s central bank BankMarkazi and its Turkish counterpart signed a currency swap agreement, paving the way for Iran to open letters of credit to finance its trade with Turkey worth 1.4 billion dollars, with a repayment period of up to one year.
Talks were also held in December between Turkey’s central bank and its counterparts in Azerbaijan and the United Arab Emirates on possible currency swaps.