Taka Allowed for Cross-Border Trade Settlements
Bangladesh Bank has issued a major policy directive allowing Authorized Dealer (AD) banks to open Taka-denominated Vostro accounts in the names of foreign correspondent banks to settle bilateral trade transactions. This crucial decision aims to facilitate import and export activities with trade partners using Bangladeshi Taka rather than relying exclusively on foreign currencies. Under the guidelines, AD banks can establish these accounts without demanding an initial deposit of foreign currency. Import receivables will be credited directly to these Vostro accounts and subsequently used to settle export bills from Bangladesh, significantly reducing exchange constraints.
The central bank emphasized that trade transactions conducted through Vostro accounts must operate seamlessly under existing frameworks established with foreign trade partners. While invoices, letters of credit (LCs), and contracts will remain denominated in freely convertible or approved currencies, invoice values will be converted into Taka at prevailing market rates. Import payments can be credited directly from the importer’s account or via local interbank channels, backed by necessary documentation. Exporters will receive their proceeds in Taka once required shipping documents are verified, establishing an efficient closed-loop monetary mechanism.
To maintain operational consistency, Bangladesh Bank laid down specific instructions regarding the sourcing of raw materials for export production. When export proceeds are collected in Taka, the raw materials for those goods must also be procured in Taka to keep costs balanced. However, AD banks retain the flexibility to convert Taka export proceeds into foreign currency under prescribed regulations. These retained funds can be utilized by exporters to settle foreign-denominated input costs or service loans from the Export Development Fund (EDF), ensuring that local manufacturers retain their international competitiveness.
Surplus balances accumulated in Taka Vostro accounts following trade settlements are not limited strictly to commercial trade usage. Bangladesh Bank permits foreign institutions to deploy excess Taka balances into financial investment channels within Bangladesh, including Foreign Direct Investment (FDI), foreign portfolio investments, and mutual funds. Furthermore, subject to regulatory approvals, surplus funds can be extended as loans to resident business entities in Bangladesh or remitted abroad. These flexible investment avenues incentivize foreign partner banks to hold and manage Taka-denominated balances long-term without fear of trapped liquidity.
Despite introducing Taka-denominated trade settlement mechanisms, Bangladesh Bank reiterated that all existing reporting and compliance requirements remain strictly enforced. Transactions must adhere to traditional IMP forms for imports and EXP forms for exports, with initial invoicing values reported to the central bank in original currencies. Banks must exercise thorough due diligence, including stringent reviews of foreign correspondent banks and verification of underlying trade legitimacy. AD banks are required to maintain strict adherence to Know Your Customer (KYC), Anti-Money Laundering (AML), and Countering Financing of Terrorism (CFT) protocols.
Additionally, Bangladesh Bank granted flexibility for AD banks to maintain Nostro accounts in a partner country’s local currency upon obtaining prior central bank approval. This measure ensures that bilateral trade can proceed smoothly even when dealing with non-freely convertible foreign currencies. AD banks must inform the central bank’s head office before establishing any Vostro arrangements, providing complete details regarding partner institutions and anticipated transaction volumes. All other foreign exchange regulations remain intact, marking a major strategic evolution in Bangladesh’s foreign exchange policy to support international commerce effectively.
