Bangladesh to sign currency swap deal with Russia

Bangladesh is preparing to take an alternative route to strengthen its trade ties with Russia, bypassing the US sanctions on the latter.

As part of it, the Bangladesh Bank has taken an initiative to enter into a bilateral swap agreement with the Central Bank of Russia.

The currency swap deal will enable both the countries to exchange their local currencies against any third currency except the US dollar between them. There will be no need for introducing correspondent banking between the two countries for export and import activities.

The proposed swap agreement has been drafted following a team of Bangladesh Bank officials' visit to Russia.

On Sunday, a meeting, chaired by Commerce Secretary Jafar Uddin, decided to form a committee to review the possible impact of the agreement, taking into account the global trade situation and Russia-US relations.

If the agreement is signed, this will be Bangladesh's first currency swap deal with a country.

China, the world's second-largest economy, has also offered to sign a swap agreement with Bangladesh. China has signed bilateral currency swap deals with 11 countries, but results are lacklustre thus far, said Bangladesh Bank officials.

Mohammad Hatem, senior vice-president of the Bangladesh Knitwear Manufacturers and Exporters Association, told The Business Standard, "We want the signing of the swap deal with Russia as soon as possible. Our export potential to Russia is higher than in many European countries."

The Russians also have more purchasing power than in many European countries. If the swap deal is signed, it will be possible to increase Bangladesh's exports to one of the world's largest markets several times in a few years, he added.

After Russia's annexation of Crimea from Ukraine, the country showed interest in importing fish, vegetables and potatoes from Bangladesh in the light of sanctions from the United States and the European Union.

There is also a considerable demand for Bangladeshi knitwear, medicines, shrimp, and leather goods in the country's market.

In this context, Bangladesh took various initiatives to increase bilateral trade with Russia.

As part of this, Bangladesh has struck an agreement with Russia similar to the Trade and Investment Cooperation Forum Agreement (Ticfa) signed with the US.

Two years ago, Bangladesh also signed an agreement with the Russian-led Eurasian Economic Commission.

Preparations are also underway to sign an agreement between the Bangladesh Standards and Testing Institution and the Russian quality control agency named the Federal Agency on Technical Regulating and Metrology.

Bangladesh cannot introduce direct banking facility with Russian banks because of US sanctions on its various banks and institutions.

Bangladeshi banks have Nostro accounts with US banks. Therefore, if they transact with Russian banks, there is also a risk of facing US sanctions.

Against this backdrop, an initiative has been taken to sign a currency swap agreement with Russia as an alternative transaction method, officials at the Foreign Exchange Policy Department of the Bangladesh Bank said after signing of the swap deal, if any Bangladeshi exporter sends goods to Russia, the Bangladesh Bank will pay the export in taka. The Central Bank of Russia will owe that amount to the Bangladesh Bank.

Similarly, if Bangladesh imports any product from Russia, the Central Bank of Russia will pay the price of that product to its exporter in local currency ruble. The Bangladesh Bank will be indebted that amount to the Central Bank of Russia. Every three months, the central banks of the two countries will adjust the accounts receivable.

Bangladesh imports more from Russia than it exports to. In that case, after deducting export prices from import prices, the Bangladesh Bank will pay the remaining amounts plus interests to the Central Bank of Russia in a third foreign currency every three months, according to the commerce ministry.

In the fiscal 2019-20, Bangladesh's exports to Russia amounted to $487 million. At the same time, imports from Russia were $782 million. Global brands currently doing business in Russia are paying Bangladeshi import prices from Hong Kong and Singapore offices.

Mollah Salehin Siraj, Bangladesh's commercial counsellor in Moscow, in a report last month said there was huge potential for Bangladesh's exports of readymade garments, pharmaceuticals, electronics, fruits and vegetables to the Russian market.

Seeking anonymity, a Bangladesh Bank official told TBS that if the product exchange swap deal is signed with Russia, Bangladesh will not incur any loss. Otherwise, Bangladesh will be the loser because Bangladesh imports almost twice as much as it exports to Russia. For this reason, every three months, Bangladesh has to pay the remaining import prices along with interests.

India's exports and imports of certain products with Iran run under the product swap deal. India is one of the largest buyers of Iranian petroleum. In return, India exports to Iran the goods that the latter needs. If India does not have those products available in the country, it imports them from China and sends them to Iran, he added.