'A reserve full of less acceptable currencies will not benefit us'

The SCO leaders want to increase the share of their national currencies in mutual settlement, as the US dollar has gotten stronger due to the sanctions against Russia and China. European countries, Australia and Canada are however not against using the US dollar. 

Using alternative currencies is justifiable when the US dollar turns expensive unnecessarily. However, local currencies in this context have a big challenge: acceptability. If trade happens in bilateral form, it is okay. This form of transaction eases back-to-back LC. 

However, in the case of Bangladesh, most of the country's back-to-back LCs are on exports and imports to and from the US and European destinations. Bangladesh also imports from many countries, including China and India. 

Bangladesh's trade with central Asian countries under the SCO is negligible. Before joining such blocs, we should consider this context. 

Bangladesh cannot reduce its reliance on the US dollar, pound sterling and euro overnight. Mutual settlement is a complex process. There has to be agreements between two countries in terms of sharing local currencies.

At present, any decision to quickly join a bloc will not be wise. In Bangladesh, we tend to make decisions impulsively, without any in-depth analysis. Often, the decisions are motivated politically without considering their long-term impacts. 

Bangladesh should assess the potential of export growth, affordable imports and remittance flow before joining hands with the SCO. 

With India, Bangladesh's import is much higher than export. If India accepts taka, it will leave them with a dilemma over a huge reserve of taka. India cannot pay with taka to other countries. 

Trade can be carried out through exchange of local currencies, provided there is specific agreement with the other party. However, joining a bloc will make the transaction system more complex. In that, only a few strong economies will be benefited. 

In 2014, the Bangladesh government recognised the Chinese Yuan as a convertible currency. Then why were the banks reluctant to facilitate trade between the two countries through local currencies? Because the banks need to think about the reserve. A reserve of Yuan will be only limited to China-Bangladesh trade, it cannot be used for trade with other countries. 

On the other hand, convertible currencies like the US dollar, sterling pound, euro, and even the Canadian and Australian dollars have acceptability in global trade. 

In the context of SCO, we know that China is one of the biggest economies and the IMF has recognised Yuan. But considering trade in the other currencies [of SCO member states] will be unwise. They have no acceptability. 

Before joining such an alliance, the Bangladesh government needs to understand its impacts on our economy. Will it sharpen the country's competitiveness, will it reduce the import cost? We need to think deeply.

Bangladesh's development index will be measured based on the reserve of US dollar. If the private sector wants to expand, they will surely choose the US dollar, not the Indian Rupee or other local currencies. A reserve full of less acceptable currencies will not benefit us.