With a bilateral trade volume worth $16bn, India is Bangladesh’s second-largest trading partner after China. Through this deal, Bangladesh will be able to perform rupee transactions to the tune of $2bn — the amount it gets from its exports to India each year. The country imports $14bn worth of goods from its bigger South Asian neighbour annually.

Pointing out this huge trade imbalance, some Bangladeshi economists and financial analysts have expressed their scepticism over trading in rupees. While this arrangement would definitely benefit India and give impetus to its long-cherished aspiration to make the rupee a global currency for trade, they said it would not give Bangladesh any significant advantage.

This trade in rupees will not ease any pressure on the declining foreign reserves of Bangladesh – which, according to the latest calculations from the International Monetary Fund (IMF), now stand at $23.56bn, equal to four months of the country’s import bills – down from over $42bn a year ago, these experts said.

In a bid to halt further depletion of those reserves, Bangladesh has already toughened import rules, but that hasn’t provided much respite as the greenback comprises 75 percent of the country’s foreign reserves and the value of its currency, the taka, has depreciated against the US dollar by more than 25 percent in the last one year.

To avert excessive dependence on the United States dollar, Bangladesh Bank (BB), the country’s central bank, last year allowed businesses to settle payments for international trade through the Chinese yuan, whose stockpile is now 1.32 percent, up from 1 percent in 2017.

BB spokesperson Mezbaul Haque said the recent rupee trade provision is “another way of reducing dollar dependency”.

Experts, however, think otherwise.

“The calculation is simple,” said Zahid Hussain, former lead economist of the World Bank’s Dhaka office. “Bangladesh will need to settle its $12bn-plus trade deficit [with India] in dollars. Unless Indian exporters accept taka as a means of settlement, I don’t see how rupee trading will help cushion the foreign exchange reserve crisis.”

But there is no “obvious loss” from this arrangement for Bangladesh since the use of rupees in imports and exports is voluntary, Hussain added. “India wants to internationalise its currency, and it is taking a step in that direction. Bangladesh, being a friendly neighbour, is probably trying to help out,” he said.

Boon for some businesses

Some businesses say the rupee trade arrangement will actually benefit them. Mohammad Hatem, the owner of MB Knit Fashion, one of the largest garment factories in Bangladesh, told Al Jazeera that he will be able to save at least 6 percent of his costs because of direct transactions in rupees.

Hatem said that he imports a large chunk of his raw materials from India, and now he doesn’t need to bear the loss in conversion costs. “Earlier, we needed to convert taka to dollars and then rupees to dollars for trade. In doing so, we used to lose $6 per $100 in conversion costs. Now we can have direct transactions in rupees,” he said.

As of now, Bangladesh’s state-owned Sonali Bank, private Eastern Bank Limited (EBL), and the Bangladesh operation of India’s State Bank of India (SBI) have opened special nostro accounts in rupees with two Indian banks: SBI’s international services branch in Mumbai and ICICI Bank. A nostro account is an account opened by a bank in one country for foreign currency transactions at another country’s bank.

In these accounts, Bangladeshi exporters will receive their proceeds in rupees, and the balance will be used to pay for Indian imports. It means the mechanism can be used to settle import bills equal to only the export earnings. The market would decide on the exchange rate.

Officials from Unilever Bangladesh confirmed that they have already opened a letter of credit (LC) in rupees. The multinational giant controls over half of the $4bn Bangladeshi market for fast-moving consumer goods, and it imports 40 percent of the raw materials it needs from India.

Economist Hussain said he is finding it hard to figure out the savings in rupee transactions. “Imports from India used to be invoiced and paid in dollars, and now you can invoice and settle in rupees,” he said. “There was a single conversation then, and there is a single conversion now. Only the currency is different, so it is not clear to me where the transaction cost savings will come from.”

Financial analyst Zia Hassan told Al Jazeera that he is certain about one thing: This rupee trade settlement will not provide any reserve relief, as the dollar savings from import costs using the rupee will be offset by the nonreceipt of export earnings in dollars.

Hassan also argued that the rupee trade arrangement in its current design exposes Bangladeshi commercial banks and central banks holding large amounts of rupee reserves to potential arbitrage losses. “This is because, as an export-oriented nation, India obviously tends to favour rupee devaluation,” he said.

Hassan noted that a weak domestic currency makes a country’s exports cheaper and more competitive. So if the value of the rupee –which usually fluctuates way more than the US dollar – is reduced, the banks in Bangladesh will have to bear the losses, he said.

“Besides,” he noted, “many of the Indian exporters may resist receiving their export proceeds in rupees, preferring to earn dollars instead of rupees through exports.”

Will it reduce the trade deficit?

Over the last three years, Bangladesh’s exports to India have continuously exceeded the $1bn mark, and they surpassed $2bn for the first time in the previous fiscal year. While launching the rupee trade arrangement last month, BB Governor Abdur Rouf Talukder said it will enable Bangladesh “to increase exports to India manifold” as Indian customers will see that they are purchasing the products in their own currency and may consider Bangladeshi products as their own. “So,” he said, “I think it will open a new way for us to boost exports to India.”

Even so, Rashed Al Mahmud Titumir, professor of economics at Dhaka University, told Al Jazeera that this rupee trade arrangement is very unlikely to “foster any new trade creation between these two countries”.

India is still imposing anti-dumping duties on many Bangladeshi goods, which prohibits Bangladesh from creating any sustainable production network system with India for its goods. “Without new trade creation, I don’t see how this massive trade deficit will be reduced and help Bangladesh reap the benefit of rupee trade,” Titumir said.

SM Abul Kalam Azad, secretary general of the India-Bangladesh Chamber of Commerce and Industry, said that the rupee trade arrangement will help millions of Bangladeshis who travel to India each year for tourism, medical or educational purposes.

BB announced that by September, it will launch a dual currency card named “Taka Pay”, with which a person visiting India will be able to spend money in rupees worth $12,000 per year. “Trade aside, this will obviously help a huge number of common people in Bangladesh,” Azad said.

Growing trade in rupees

Since July of last year, India has pushed for increasing internationalisation of the rupee after its central bank — the Reserve Bank of India (RBI) — paved the way for global trade settlement in rupees. A total of 18 countries, including big economies like Germany, the United Kingdom, and Russia, have so far made bilateral trade arrangements in the currency with India.

Shafquat Rabbee, an adjunct faculty member at the University of Dallas’s business school, says that it is actually optimal for all parties in global trade settlements to use just one globally dominant currency. “That keeps transaction costs low and efficient,” he said.

Rabbee told Al Jazeera that most countries settle trades in US dollars and hold US dollars as reserve currencies “mostly because everybody else does so, too”.

“This inertia or status quo,” he said, “is powerful.”