Why Has Chinese Yuan Included in The Credit Transfer System Real-Time Gross Settlement (RTGS) in Bangladesh?

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Over time, Bangladesh and China have developed a strong trade relationship that has grown into a powerful economic partnership in recent times. This article explores the current landscape of Bangladesh-China trade relations, delving into their bilateral trade, investment dynamics, challenges, and potential for future collaborations. Similar to a global news report, the relationship between the two countries involves dealing with a significant trade deficit and overcoming challenges such as non-tariff barriers. However, it is defined by increasing investments, especially in infrastructure, and a shared dedication to promoting economic growth.

Providing a comprehensive overview of the Bangladesh-China relationship, this analysis sheds light on the opportunities and challenges that define their economic ties as both nations navigate the complexities of international trade.

In light of these circumstances, the recent addition of the Chinese yuan (CNY) to Bangladesh’s Real-Time Gross Settlement (RTGS) credit transfer system becomes the focal point. Starting from February 4, the central bank has made a strategic decision following the significant growth in trade between Bangladesh and China. This growth has been driven by substantial investments from China’s Belt and Road Initiative. The inclusion of the yuan in the RTGS system reflects the need for efficient cross-border transactions and recognizes China’s growing importance in global trade.

This development is part of a larger trend, where Bangladesh has been making payments to Russia in Chinese yuan since last year and allowing banks to hold correspondent accounts in yuan to facilitate international trade. This decision was guided by influential factors such as the stability of the yuan, especially in challenging economic conditions, and its crucial role in global commerce.

Expanding its capabilities, the RTGS platform now facilitates real-time settlement of Chinese yuan transactions, offering a more efficient process for interbank exchanges. As we explore the intricacies of this strategic decision, it becomes clear that the addition of the yuan to Bangladesh’s RTGS system is more than just a financial update. It signifies the changing dynamics of international trade and the strengthening economic relationship between Bangladesh and China.

Bangladesh Bolsters Economic Ties with China: Inclusion of Yuan in RTGS Signals Strategic Alignment, Diversification, and Belt and Road Initiative Impact

This development in Bangladesh’s Real-Time Gross Settlement (RTGS) system highlights a significant step towards strengthening the economic relationship between Bangladesh and China. This action is a component of a wider initiative aimed at improving the effectiveness of financial transactions, acknowledging China’s increasing importance in global commerce. International trade between Bangladesh and China has experienced a significant boost, thanks to investments from China’s Belt and Road Initiative (BRI). This surge in trade has had a profound impact on the decision-making process, as the initiative has not only fostered economic cooperation but also influenced financial infrastructures.

Bangladesh is set to receive a significant financial package for a range of projects, with a particular focus on energy and transport sectors, under the BRI. The yuan being included in the RTGS system is in line with Bangladesh’s economic projection, as infrastructure investment needs are expected to reach 1.5% of GDP by 2040.

Another reason for including the yuan is the need to diversify currencies and decrease dependence on the US dollar. The government has been facing challenges due to the recent fluctuation in the exchange rate between the USD and the Bangladesh Taka. Adopting Chinese yuan for payments to Russia and enabling banks to hold correspondent accounts in yuan are strategic measures to diversify currency holdings, aligning with global trends to reduce reliance on a single currency.

The stability and reliability of the Chinese yuan during challenging economic situations, such as the Asian financial crisis in 1997 and the global financial crisis in 2008, are important factors that impact this decision. The yuan’s strength has led to its inclusion in Bangladesh’s RTGS system, signaling a shift away from a single-currency approach.

In addition, the decision is supported by a strong regulatory framework for foreign exchange transactions, ensuring adherence to established guidelines. Geopolitical factors may also come into play, indicating Bangladesh’s ability to adapt to changing global economic dynamics and its strategic response to shifts in geopolitics.

This decision to include the Chinese yuan in Bangladesh’s RTGS system is driven by various factors, such as strategic economic alignment, the influence of the Belt and Road Initiative, the need for currency diversification, the stability of the yuan, and considerations of regulatory frameworks and geopolitics.

An international news highlights the multitude of benefits offered by the Real-Time Gross Settlement (RTGS) system between Bangladesh and China, fostering enhanced bilateral trade and economic cooperation. Efficient cross-border transactions are essential for smooth fund transfers in trade settlements, which play a crucial role in the rapid growth of bilateral trade. China is currently Bangladesh’s largest trading partner.

For large-scale projects, the RTGS system is a crucial component of the necessary financial infrastructure, supporting investments in the Belt and Road Initiative (BRI). This facilitates prompt and safe money transfers, which is especially important considering China’s significant investments in Bangladesh via the BRI, thus promoting economic growth and collaboration.

Bangladesh and China Forge Stronger Economic Bonds through Cutting-Edge RTGS System: Enhancing Trade, Infrastructure, and Global Financial Collaboration

The real-time settlement feature of the RTGS system is highly beneficial for handling time-sensitive transactions, particularly those related to significant infrastructure projects. This speeds up fund transfers, ensuring the seamless progress of important projects without any disruptions in financial transactions.

The system also deals with currency risk by settling transactions in Chinese yuan, reducing dependence on U.S. dollars. This is in line with the current global trend of countries diversifying their currency holdings to reduce their reliance on a single currency.

Facilitating real-time collaboration through the RTGS system between financial institutions in Bangladesh and China enhances financial ties, fostering transparency and accuracy in transactions. This live exchange fosters confidence between the two countries, leading to a more cooperative economic environment.

From a global perspective, the addition of the Chinese yuan to Bangladesh’s RTGS system indicates changes in financial alliances, demonstrating a practical response to shifting geopolitical and economic dynamics. Exploring different currency options and embracing China’s currency demonstrate flexibility in response to evolving global conditions.

The efficiency of the RTGS system helps create a favorable investment environment, building trust among investors from all around the world. Financial transactions between Bangladesh and China promote greater investment flows due to their transparency and immediacy.

In addition, the implementation of an RTGS system demonstrates that both countries are keeping up with global trends in modern financial infrastructure. This showcases their forward-thinking approach in adopting technologies that improve financial efficiency and mitigate settlement risks.

The RTGS system is essential for monetary policy coordination, enabling collaboration between the central banks of Bangladesh and China. Having the ability to monitor and regulate fund movements in real-time is crucial for effectively managing interest rates, liquidity, and maintaining overall economic stability through collaboration.

This development between Bangladesh and China in implementing a Real-Time Gross Settlement (RTGS) system is a major step forward in their economic partnership. It brings significant advantages and is in line with current global financial trends. This calculated maneuver demonstrates a progressive mindset towards financial cooperation between these two countries.

To summarize, the RTGS system plays a crucial role in enhancing economic relations by simplifying cross-border transactions between Bangladesh and China. It is clear from the strong trade relations and significant investments, especially through China’s Belt and Road Initiative (BRI), that the system promotes large-scale initiatives, encouraging economic development and cooperation. This is of utmost importance for Bangladesh, as it foresees substantial infrastructure investment requirements, amounting to 1.5% of GDP by 2040. In addition, the decision to include the Chinese yuan in the RTGS system is a practical response to the changing dynamics of global trade. Facilitating payments to Russia in yuan and permitting correspondent accounts in the same currency demonstrate a dedication to expanding currency holdings, decreasing dependence on the U.S. dollar, and managing currency risk.

– S. M. Saifee Islam is a Research Associate at the KRF Center for Bangladesh and Global Affairs (CBGA).

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