BB allows cross-border trade settlement in taka through vostro accounts

Bangladesh Bank has introduced a framework allowing eligible cross-border trade transactions to be settled in taka through Non-Resident Taka (vostro) accounts maintained by authorised dealer (AD) banks for correspondent banks in trading partner countries.

The central bank issued a circular today (23 September) outlining the new arrangements for operating vostro accounts.

How will Bangladesh's new cross-border trade settlement in taka work?

Under the existing system, AD banks could open taka vostro accounts for their overseas branches and correspondent banks against inward remittances in freely convertible currencies.

According to the circular, balances in these accounts can be used to settle export proceeds from Bangladesh and other permitted transactions.

Letters of credit, contracts and invoices will continue to be denominated in freely convertible or other admissible currencies. The invoiced amounts will be converted into taka at the prevailing exchange rate for settlement through the vostro accounts.

The central bank has also allowed advance payments for eligible imports and exports under the arrangement, subject to existing foreign exchange regulations.

Exporters receiving proceeds in taka will remain eligible for foreign currency retention facilities, where applicable, including for meeting import payments for inputs and repaying Export Development Fund (EDF) loans.

Surplus balances in taka vostro accounts can also be used for permitted investments in Bangladesh, including foreign direct investment, foreign portfolio investment, alternative investment funds and open-end mutual funds, subject to prevailing regulations.

The move is expected to facilitate greater use of the taka in cross-border transactions with suitable trading partners and diversify the settlement mechanisms available for international trade.