Banks allowed to maintain yuan accounts

Banks can now maintain an account in yuan with their corresponding branches abroad to settle cross-border transactions in the Chinese currency. 

The Bangladesh Bank issued a circular in this regard on Thursday, aiming to widen the scope for banks to settle cross-border payment in yuan, which is also known as Renminbi. 

Previously, the authorised dealers could maintain a foreign currency clearing account with the Bangladesh Bank in the Chinese currency. 

At present, banks are maintaining their nostro account, an account that a bank holds in a foreign currency in another bank abroad, in dollars mostly. 

The Bangladesh Bank opened the scope of cross-border payment settlements in yuan at the time when central banks around the world are increasing yuan holdings in their reserves as China, while its economic might grows, wants its money to replace the US dollar as global currency.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said it is a beginning of the journey of reducing dependency on a single currency for trade settlement. 

From now on, banks will start to hold Chinese currency to settle payments in the future, he said. 

Meanwhile, China has offered a currency swap agreement between the Bangladesh Bank and the People's Bank of China, its central bank, for using both renminbi and taka as currencies of pricing and settlement in bilateral trade.

In a letter sent on 19 August this year, the Embassy of China in Dhaka said a currency swap agreement will help to mitigate foreign exchange rate risk and reduce the cost of foreign exchange transactions.

The Bangladesh Bank has been building up the share of yuan in its foreign exchange reserve, cutting down the share of dollar as the Chinese currency is gaining acceptance faster in global markets for international payments as an alternative to the greenback.

The share of yuan in Bangladesh's foreign exchange reserve increased to 1.32% in August this year from 1% in 2017 when the dominating US dollar reserve fell significantly to 75% from 81% during the period, according to Bangladesh Bank data.

The share of yuan has been growing steadily in the country's foreign exchange reserve after the Chinese currency was included in the Special Drawing Rights (SDR) currency basket of the International Monetary Fund (IMF) in 2016.

The IMF included the yuan in its SDR basket as a fifth currency, along with the US dollar, the euro, the Japanese yen and the British pound. The inclusion in the SDR basket means yuan is now an internationally convertible currency.

At present, the Chinese yuan ranks third in terms of weight in the SDR basket, after the US dollar and the euro.

The Bangladesh Bank declared yuan as an approved currency for reserve holding some time after and started to build up the share of Chinese currency in the reserve, aiming to facilitate foreign investors amid rising business engagement with China.

As of August 2022, $528 million retained as yuan remained invested in the Chinese financial market. The figure was $323 million in January 2017, according to the Bangladesh Bank.

The total import from China was Tk1 lakh crore in FY21 and exports from Bangladesh to the country was Tk4,804 crore.