Case for rupee trade with Dhaka

Case for rupee trade with Dhaka

New Delhi, April 19: When India’s commerce minister Anand Sharma calls on Bangladesh Prime Minister Sheikh Hasina next week to discuss a new trade deal, he won’t be talking about the possibility of trading in rupees.

However, many Indian and Bangladeshi businessmen would welcome trade in the rupee instead of the volatile dollar with its attendant exchange risks.

India sells some $2.5 billion of merchandise annually to Bangladesh and buys about one-tenth of that from its eastern neighbour, a trade imbalance which Sharma will try to address during his visit with promises of opening up to more duty free imports.

Attiur Rahman, governor of the Bangladesh Bank, the coastal nation’s central banker, told The Telegraph that he would not rule out trade in rupees, “provided the currency became fully convertible”.

For a currency to be acceptable globally by businesses and made part of reserves which central banks around the world buy and keep, it has to be normally fully convertible and stable against most major currencies.

“Trade in local currencies with neighbouring countries would cut down forex risks and may be the way forward, but for the rupee to be acceptable in the wider world, convertibility would be a must,” said D.K. Joshi, chief economist of Crisil.

Till June 6, 1966, the Indian currency was officially or unofficially the acceptable tender over a wide area from Beirut to Hong Kong. In 1966, India devalued the rupee, forcing itself out of global markets.

Aden, Oman, Bahrain, Qatar, Trucial Gulf states (present day UAE), Tanganyika (former name for Tanzania), Uganda, Seychelles and Mauritius were among the nations where the rupee was legal tender. But the currency as global tender is now history and accepted only in neighbouring countries such as Nepal, Bhutan and Afghanistan.

“The Chinese are doing trade deals in renminbi with many countries and we should do the same,” Joshi added.

Though none of the Brics (Brazil, Russia, India, China and South Africa) countries have convertible currencies, they have agreed to their development banks opening lines of credit in their respective currencies for mutual trade.

“Rice trade in rupee could cut out exchange risks and keep the business coming,” agreed D.N.Pathak, executive director of the All India Rice Exporters Association. Though official trade between India and Bangladesh was less than $3 billion, unofficial trade across the border — often by smugglers in medicines, cattle, rice and even eggs — was estimated at over $1.5 billion. This trade is carried out in rupee and taka (Bangladesh’s currency) without any foreign currency payments being involved.

Many neighbours often trade in a robust local currency if that reduces exchange related risks and helps save scarce foreign exchange. However, in the case of India and Bangladesh, with both currencies being defined by its relative value to the dollar, the currency risk would hardly be reduced by converting the trade to rupees.

Explained Matlub Hussein, chairman of diversified Nitol Nilay Group, which among other things assembles Tata trucks and vehicles in Bangladesh, “Unless we change the base (dollar), it won’t make sense but if we can do that then yes it’s a far better of way doing business.”