Bangladesh’s external sector is shaped by a distinctive geographical imbalance. On one hand, inward remittances flow predominantly from the Gulf region, Europe, and North America. On the other hand, outward trade payments are heavily concentrated in South and East Asia – particularly India and China. This asymmetry between where Bangladesh earns and spends creates a structural question for policymakers: should the country continue to rely almost entirely on a third-country currency system, or gradually align its payment architecture with its actual trade geography?
The US dollar functions as the dominant settlement currency for most international transactions. It is widely used not because trade partners necessarily demand it, but because it offers deep liquidity, global acceptance, and financial interoperability. However, the implication for Bangladesh is not as simple as ‘conversion in and out of dollars’. In reality, most imports from China and India are already invoiced in dollars, meaning Bangladesh does not usually face a double currency conversion cycle. Against this backdrop, the idea of diversifying settlement currencies – particularly toward Indian Rupee (INR), Chinese Yuan (CNY), and, in limited cases, Russian Ruble (RUB) – has gained policy attention. The question is not simply whether it is technically possible, but whether it is economically sustainable and structurally coherent with Bangladesh’s trade patterns.
Bangladesh has already taken initial steps toward INR-based settlement in trade with India. This allows bilateral transactions to be settled in local currency rather than routed through the dollar. In principle, this reduces dependence on third-currency intermediation and can improve transaction efficiency. However, sustainability depends on underlying trade balance dynamics. Bangladesh consistently runs a trade deficit with India, meaning INR outflows exceed inflows. Without sufficient INR earnings through exports or remittance channels, a persistent mismatch emerges that requires external balancing mechanisms.
China is Bangladesh’s largest import partner, supplying capital machinery, industrial inputs, and infrastructure-related goods. In this context, CNY-based settlement appears economically aligned with trade reality. Integration with China’s Cross-Border Interbank Payment System (CIPS) could further streamline settlement processes and reduce reliance on intermediary financial channels. It may also shorten transaction chains and improve efficiency in cross-border payments. However, integration into CIPS is not merely a technical decision – it carries strategic implications. It may deepen financial linkages with China, but also requires careful calibration to avoid overdependence on a single currency or system for which sustained inflow in Chinese currency is not naturally available. This highlights a deeper structural constraint: without sufficient Chinese import demand for Bangladeshi goods, CNY liquidity accumulation remains asymmetric and limited.
This brings us to a broader systemic issue that is often overlooked in discussions of currency internationalisation. Asian major economies increasingly aim to promote their currencies in global trade, yet their domestic consumption structures are not sufficiently import-intensive to generate balanced two-way currency flows. In simple terms, they export heavily but do not import proportionately from many partner countries like Bangladesh. Without being meaningful consumers of partner-country exports, currencies such as the Yuan, Rupee, or Ruble face structural limits in becoming fully international. Currency internationalisation is therefore not only a function of policy design or payment infrastructure. It requires symmetrical trade participation. China, India, and Russia must recognise that promoting their currencies abroad without expanding import openness creates inherent imbalances. A currency becomes global not just when it is used for invoicing exports, but when it is equally demanded for settling diversified import flows.
Within this context, currency swap arrangements are often presented as a bridging mechanism. Central banks establish swap lines to provide liquidity support in partner currencies, allowing temporary settlement flexibility. However, swaps are not a structural solution to payment system design. For countries like Bangladesh, they function more as short-term liquidity borrowing instruments than genuine settlement frameworks. More importantly, they carry a cost. Swap utilisation typically involves interest payments over the usage period, effectively making them a form of conditional borrowing rather than cost-free facilitation. This means they do not eliminate dependency; they merely finance it temporarily.
The Russian Ruble presents a more constrained case. Bangladesh’s trade with Russia is limited but strategically important, particularly in energy and specialised imports. Russia’s development of alternative systems such as SPFS reflects a broader attempt to reduce reliance on Western financial infrastructure. While selective engagement in RUB-based settlement may be feasible in specific bilateral transactions, the currency’s volatility, limited convertibility, and geopolitical constraints significantly restrict its role in Bangladesh’s broader trade settlement framework.
Beyond individual currencies, the global financial system is gradually evolving toward fragmentation, with multiple parallel payment infrastructures emerging. SWIFT remains dominant, but alternatives such as CIPS and SPFS reflect a slow shift toward a multipolar payment architecture. For Bangladesh, the strategic question is not alignment with any single system, but whether participation in multiple systems can enhance resilience and reduce transaction frictions. Yet caution is essential. The dollar’s dominance persists not due to inertia alone, but because of its unmatched liquidity, depth of financial markets, and universal acceptance. Any alternative system must demonstrate clear operational advantages in cost, speed, and reliability. Without these, diversification risks adding complexity without delivering proportional benefits.
Remittance flows further complicate the picture. Unlike trade, remittances are determined by the geographical distribution of migrant workers and the financial systems of host countries. Since Bangladeshi workers are concentrated in the Gulf, Europe, and North America, remittance inflows remain anchored in USD and EUR ecosystems. This structural reality limits the scope for large-scale currency realignment in the short to medium term. Given these constraints, a pragmatic approach is essential. Bangladesh can gradually expand INR settlement where trade flows justify it, selectively explore CNY-based transactions for import-heavy sectors, and maintain cautious engagement with alternative systems like CIPS for efficiency gains. However, wholesale displacement of the dollar is neither feasible nor desirable under current global conditions.
Policy focus should instead shift toward building a more flexible and multi-layered payment architecture. This includes strengthening bilateral settlement frameworks, enhancing multi-currency reserve management, and developing a digital payment infrastructure that reduces transaction costs over time. Emerging technologies, including central bank digital currencies (CBDCs), may eventually enable more direct and efficient cross-border settlements, but they remain a medium-term prospect.
In conclusion, Bangladesh’s payment geography reflects a deeper structural reality: earning from one set of regions and spending in another. This mismatch cannot be resolved simply by substituting one currency for another. The objective should not be de-dollarisation, but de-fragilisation – reducing vulnerability while preserving efficiency. A balanced approach that combines selective local currency settlement, cautious engagement with alternative payment systems, and continued use of global reserve currencies offers the most realistic path forward. In an increasingly multi-polar financial world, adaptability – not exclusivity – will define resilience.
The writer works as a liaison officer at a trade company in Bangladesh
