India and Bangladesh discuss settlement of trade in Indian rupees

New Delhi: Bangladesh Commerce Minister Tipu Munshi is officially visiting India and met the Indian Commerce Minister Piyush Goyal. Both agreed to start the discussions for a Comprehensive Economic Partnership Agreement (CEPA) at an early date.

Both ministers also discussed the settlement of trade in Indian Rupees.

The other countries that India is going to trade with Indian rupees are Sri Lanka and Mauritius. The trade is quite successful with Russia following the imposition of sanctions on Moscow over the Ukraine war. While Bhutan and Nepal are already doing a major chunk of their trade with Indian rupees.

India’s rupee trade settlement mechanism is a means of using rupees instead of dollars and other big currencies for international transactions. It is attracting interest from several countries and there are likely to be more Vostro accounts opened that are approved by the Reserve Bank of India or RBI.  

A Vostro account is an account in a correspondent bank held on behalf of another bank. These accounts are an essential aspect of correspondent banking in which the bank holding the funds acts as a custodian for or manages the account of a foreign counterpart. Vostro is a Latin word that translates to "your," as in "your account

A Vostro account is an essential part of correspondent banking in which a foreign bank acts as an agent providing financial services on behalf of a domestic bank.

This would ease India’s hard currency outflow substantially. Reduce the Dependency on US dollar requirements and Strengthen Rupee. This mechanism also may Reduce the Cost of Conversion Charges for Exporters and Importers.

A few days ago, a Sri Lankan bank opened a Vostro account in the State Bank of India to conduct bilateral trade in Indian Rupees.

Tajikistan, Cuba, Luxembourg and Sudan have begun talking to India about using the mechanism Mauritius have also shown interest, and have seen their special Vostro accounts approved by the RBI

 Meanwhile, India and Bangladesh Ministers discussed various issues of mutual interest including the removal of non-tariff barriers and port restrictions, re-opening of border haats, harmonization and mutual recognition of Standards and procedures on both sides, settlement of trade in Indian rupees, strengthening connectivity and trade infrastructure, among others, to realise the full potential of India-Bangladesh economic ties.

A Joint feasibility study on a Comprehensive Economic Partnership Agreement (CEPA) has been carried out after the two countries agreed to explore a bilateral FTA.

Further, both sides agreed that CEPA will create new jobs, raise living standards, and provide wider social and economic opportunities in India and Bangladesh. In addition, the partnership would establish reliable and sustainable Regional Value Chains (RVCs).

Both sides also agreed to work together to resolve the issues raised during the meeting and ensure that the outcomes expected in the Joint Statement by the two leaders,

The meeting was in continuation to the meeting of Prime Minister Narendra Modi and Bangladesh Prime Minister Sheikh Hasina, in September 2022 where both sides agreed to further strengthen their partnership in trade and commerce.

The last meeting between the Commerce Ministers of the two countries was held in Dhaka in September 2018.