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Dhaka [Bangladesh], May 16 : Certain financial institutions in Bangladesh are exploring for Chinese payment channels to settle transactions with Russian banks that were removed from the SWIFT system to overcome the challenges experienced by importers and exporters as a result of Western sanctions following Russia's attack on Ukraine, The Asian Age reported.The Bangladeshi government is apparently under pressure from some pro-Chinese high-ups to switch to the Chinese currency Yuan for foreign transactions.However, analysts have warned that using the Yuan for foreign payments could result in financial catastrophe. Bangladesh's relations with the United States of America will undoubtedly be impacted if the country abandons the dollar. One of Bangladesh's most important development partners is the United States. Bangladesh shouldn't attempt to bypass SWIFT either because most of its ready-made garment exports go to the USA and European nations, all utilising SWIFT for international transactions. Making poor decisions might seriously damage both the economy and the sovereignty of Bangladesh, as per a report published in The Asian Age.Cheques will be cleared in Yuan rather than dollars when transactions are conducted through China. But the dollar is the strongest foreign currency. Moving to the Yuan for international trade will hurt Bangladesh's remittances from abroad and lower export revenue as well. Therefore, it would not be advisable to even consider substituting dollars for Yuan, according to The Asian Age.Bangladesh is resorting to alternate currency arrangements, including the usage of the Chinese Yuan in international transactions, due to the strong dollar and its concern over declining foreign reserves.The central bank of Bangladesh, Bangladesh Bank, announced in mid-September that authorised dealer banks (ADs) can conduct Yuan transactions for commerce with China.The central bank said in a circular, "To bring [a] wider scope, it has been decided that ADs may maintain accounts in [Yuan] with their correspondents/branches abroad for settlement of cross-border transactions executed in this currency."This follows a decision made in 2018 to enable AD banks to create Yuan-based foreign exchange clearing accounts with Bangladesh Bank.Although China's envoy to the nation was recently cited as saying the overall trade value had reached USD 25 billion, reports place Bangladesh's yearly imports from China at approximately USD 15 billion to USD 16 billion and exports in the other direction at about USD 1 billion. According to experts, Bangladesh can lessen its reliance on the dollar by using the Yuan to pay for around 10 per cent of its import expenses, according to The Asian Age.Al Mamun Mridha, joint secretary general of the Bangladesh China Chamber of Commerce and Industry said that adding the Yuan as a currency for trade with China is a "very useful step which we had been demanding for a long time."He also said that this would reduce the need for either side to pay conversion fees. And while the availability of Yuan in local banks could be a problem, Mridha suggested that future Chinese loans and investments in Bangladesh could be made in Yuan to expand the stock of the currency.Taka, the Bangladeshi currency, has lost nearly 25 per cent of its value against the dollar since Russia invaded Ukraine earlier this year, rocking global energy and commodities markets. As import costs rise, inflation in the South Asian country has surged above 7 per cent while its foreign exchange stockpile has fallen sharply.Reserves that stood at USD 48 billion in August 2021 are now below USD 37 billion barely enough to cover import bills for five months. If the International Monetary Fund's more stringent reserve calculation method is used, the figure does not even reach USD 30 billion, according to The Asian Age.This has compelled the government to discourage unnecessary imports and cut spending, including limiting foreign trips by its employees. Bangladesh is also seeking a USD 4.5 billion loan from the IMF, according to reports, along with over USD 1.5 billion from the World Bank and more from various bilateral and multilateral development partners.Meanwhile, authorities are eyeing currency solutions, not only those involving the Yuan.One is a potential taka-ruble swap with sanctions-hit Russia, from which Dhaka is considering importing cheap fuel oil.The day before the Yuan decision was announced, Finance Minister AHM Mustafa Kamal told reporters, "The issue of importing fuel oil from Russia is under discussion and yet to be finalized."The minister also said, "We have to swap our currency to make the payment if Russia accepts to do so."There is also growing talk about the prospect of trade with India in rupees. Bangladesh's imports from India are estimated at approximately USD 14 billion a year, while around USD 2 billion worth of exports go the other way, according to The Asian Age.India has also made it clear that it does not wish to take on any more exposure to Bangladesh's forex risks.The State Bank of India (SBI), the country's biggest bank, late last month asked all its branches not to settle letters of credit in dollars or other third-country currencies, and to use trading partners' currencies instead.Noting that Bangladesh was categorised as "high risk" in its country risk model, the SBI said that "considering the present economic situation and shortage of foreign currency, it has been decided by the competent authority not to assume USD/other foreign currencies exposure on Bangladesh till further instructions," according to reports on the circular.The SBI, however, said transactions in rupees and taka could continue.But some speculate that Bangladesh could end up trading one dependency for another, as per The Asian Age.China ensnares smaller countries with enormous secret loans under the guise of soft loans, public and private partnerships (PPP), currency swaps, etc.China has recently shown a great deal of strategic interest in Bangladesh and made significant financial investments in the nation's physical infrastructure. Bangladesh's location in this region, where the US plans to play a bigger role, may give the US more confidence to stave off Chinese strategic ambitions. Washington nonetheless continues to view Dhaka through the lens of New Delhi, according to The Asian Age.Bangladesh must maintain cordial connections with the United States and the European Union (EU), as these two countries are the primary destinations of its readymade garments (RMG) exports. There are millions of Bangladeshi workers in the Middle Eastern nations. The Middle Eastern nations are also allies of the US and EU, The Asian Age reported.Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor

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