BB to scrutinise exporters’ proposal of back-to-back local LC in taka
The central bank held a meeting with the Bangladesh Knitwear Manufacturers and Exporters Association and the Bangladesh Textile Mills Association over the matter Wednesday. The two trade bodies, however, were at loggerheads
The Bangladesh Bank did not make any decision over the opening and settling of back-to-back letters of credit in taka at local stages in Wednesday's meeting with the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) and the Bangladesh Textile Mills Association (BTMA).
"We have discussed the matter with business people. We must look into whether the facility will conflict with other Bangladesh Bank circulars [rules]. Besides, some tax and legal analysis are also needed in this regard," said Md Mezbaul Haque, executive director and spokesperson of the central bank.
"After all evaluations, we will again discuss the matter with traders to make a decision," he told The Business Standard.
Both the BKMEA and the BTMA presented their arguments for and against local LCs in taka.
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"Banks have had a dollar crisis for a long time. Hence, we have requested the central bank to allow the opening and settling of back-to-back LCs in taka at local stages. Textile millers need dollars to import yarn but our payments to them are many times the cotton prices if we pay them in dollars," BKMEA Executive President Mohammad Hatem told reporters after the meeting.
"We want to make the payments in taka so that we can continue trade even amid the scarcity of dollars. It would be beneficial for us. This will also reduce pressure on banks," he added.
BTMA Director Razeeb Haider, however, said for the yarn sold through local LCs, cotton is sourced from other countries. "If local LCs are opened in taka, we will have to collect dollars separately from banks to import cotton.
"Besides, we need dollars to repay loans taken under the Export Development Fund. We will face a dollar crisis if they [apparel makers] open or settle LCs in taka. We will also incur a lot while buying dollars for our import settlement."
Bangladesh Bank Deputy Governor Ahmed Jamal, Executive Director Muhammad Zakir Hasan, Foreign Exchange Policy Department Director Md Sarwar Hossain and other senior officials were present at the meeting.
Knitwear, yarn producers are at loggerheads
The BKMEA, in a letter to the Bangladesh Bank on 6 November, argued in favour of opening and settling local LCs in taka instead of dollars.
"Opening and paying LCs in Bangladeshi taka instead of dollars at the local stage would help ease the greenback shortage to some extent," it read.
The BKMEA mentioned that exporters are incurring losses in LC opening and settlement due to the Tk7-8 dollar-taka conversion gap.
"Exporters will get relief from the currency exchange gaps if the demand for LC payment in taka is met," it added.
Based on that letter, the central bank called Wednesday's meeting.
Meanwhile, the BTMA in yesterday's meeting submitted another counter letter to the central bank and showed four reasons why opening and settling LCs in taka at local stages would not be possible.
The reasons include possible dollar shortages in their import payments, problems in loan payments, and complexities in money exchanges.
The trade body said they will incur 7% due to the gap in dollar exchange rates if the LCs in taka facility is allowed.
