Staff Reporter :
The Russian government has proposed Bangladesh Bank (BB) to join the financial messaging system of the Bank of Russia (SPFS-System for Transfer of Financial Messages) with a view to introducing its own payment channel for transactions with banks instead of inking a currency swap deal.
The bilateral currency swap arrangement between the Bank of Russia and the Bangladesh Bank which is initiated in 2020, the Russian authority was pursuing the Bangladesh Bank to encourage local banks to join the SPFS, a Russian equivalent of the SWIFT financial transfer system developed by the Russian central bank.
According to experts, Bangladesh could deal its payment easily in terms of importing fuel and food grain from Russia.
Fearing US sanctions, Bangladesh is not willing to join this system as Russia has already lost access to the global payment channel SWIFT.
The board members of Bangladesh Bank have decided to go slow on joining Russia’s SPFS during discussion at the recent board meeting.
“The export exposure with Russia is only $450 million with Bangladesh. The payments are done through Singapore or other countries by the importers. So, we are not facing much problem at this moment,” Serajul Islam, Executive Director of Bangladesh Bank told The New Nation on Sunday.
When asked regarding Bank of Russia’s proposal, Serajul Islam, who is also BB spokesperson said, the Bangladesh Bank didn’t see in principle to sign the individual agreement in this regard at this moment. Though there some Bangladesh’s payments are pending with Russia, it would be no problem, he added.
According to multiple sources of BB, even though Russia is asking that Bangladesh join SPFS, a system developed only for financial transfer messaging thus far, the currency vehicle issue remains unclear.
The two countries agreed on a currency swap arrangement in December 2020 aimed at reducing dependency on a third currency. Following the agreement the Bangladesh Bank prepared a concept paper.
Russia could not make it clear as to how a currency will be transferred, he said, adding that banks will most probably have to touch the SWIFT system for this purpose, which is risky for them.
According to the concept paper, the nature of the swap will be a credit line of 10 billion Bangladeshi taka for Russia and 10 billion Russian rubles for Bangladesh.
The tenure of the credit line will be three years.
The Bangladesh Bank will maintain a ruble account with the Bank of Russia having a credit line of ruble, while the Bank of Russia will maintain a taka account with the Bangladesh Bank.
Russian exporters will get their payment in ruble from the Bangladesh Bank’s ruble account with the Bank of Russia based on documents submitted by their banks to the Russian central bank. Bangladeshi exporters will get their payment in taka from the Bank of Russia in the same way.
Import payments also will be settled in a similar fashion.
The reconciliation will take place on a quarterly basis and the surplus side will get its payment from the deficit side. An agreed-upon third currency or the surplus balance may be carried forward for the next cycle.
The board of the Bangladesh Bank approved the concept paper in November 2021 and sent it to the Bank of Russia the following month.
Both parties were working on the issue but Russia’s approach changed after the Russia-Ukraine conflict broke out in February this year, said a senior executive of the Bangladesh Bank.
According to sources, during its discussions with the Russian central bank, the Bangladesh central bank demanded that deficits be settled in a third currency, but Russia was willing to use ruble for the purpose with a view to making its local currency stronger.
Russia currently has currency swap agreements with 13 countries, but Bangladesh is not much interested in currency swaps in the wake of the conflict with Ukraine, the sources added.
In this context, Russia is pursuing Bangladesh to join SPFS.
The annual trade between Russia and Bangladesh is nearly $1 billion.
In FY21, Bangladesh’s exports to Russia stood at $547 million, while imports were worth $481 million, according to Bangladesh Bank data.
Exports to Russia grew by 16.6 percent year-on-year to stand at $638 million in FY22. Import data is yet to be released.
