Moscow wants Dhaka to join Russian alternative to SWIFT

[AmiEktaKharapChele]

Local banks are less interested in joining this system for fear of facing US sanctions​

The currency swap arrangement between the Bank of Russia and the Bangladesh Bank has entered a new phase as Russia is willing to introduce its own payment channel for transactions with banks instead of inking a currency swap deal.



The latest development in the bilateral currency swap arrangement, initiated in 2020, is that Russia is pursuing the Bangladesh Bank to encourage local banks to join SPFS, a Russian equivalent of the SWIFT financial transfer system developed by the Russian central bank.

But banks in Bangladesh are not willing to join this system for fear of facing US sanctions as Russia has already lost access to the global payment channel SWIFT.


The issue was discussed at the recent board meeting of the Bangladesh Bank, where board members decided to go slow on joining SPFS (System for Transfer of Financial Messages) because of the reluctance of local banks, central bank sources told The Business Standard.

Besides, even though Russia is asking that Bangladesh join SPFS, a system developed only for financial transfer messaging thus far, the currency vehicle issue remains unclear, according to a senior executive of the Bangladesh Bank.



Russia could not make it clear as to how a currency will be transferred, he said, adding that banks will most probably have to touch the SWIFT system for this purpose, which is risky for them.

The two countries agreed on a currency swap arrangement in December 2020 aimed at reducing dependency on a third currency. Following the agreement the Bangladesh Bank prepared a concept paper.


According to the concept paper, the nature of the swap will be a credit line of 10 billion Bangladeshi taka for Russia and 10 billion Russian rubles for Bangladesh.


The tenure of the credit line will be three years.

The Bangladesh Bank will maintain a ruble account with the Bank of Russia having a credit line of ruble, while the Bank of Russia will maintain a taka account with the Bangladesh Bank.


Russian exporters will get their payment in ruble from the Bangladesh Bank's ruble account with the Bank of Russia based on documents submitted by their banks to the Russian central bank. Bangladeshi exporters will get their payment in taka from the Bank of Russia in the same way.

Import payments also will be settled in a similar fashion.

The reconciliation will take place on a quarterly basis and the surplus side will get its payment from the deficit side. An agreed-upon third currency or the surplus balance may be carried forward for the next cycle.

The board of the Bangladesh Bank approved the concept paper in November 2021 and sent it to the Bank of Russia the following month.

Both parties were working on the issue but Russia's approach changed after the Russia-Ukraine conflict broke out this February, said a senior executive of the Bangladesh Bank.

The senior executive of the Bangladesh Bank said during its discussions with the Russian central bank, the Bangladesh central bank demanded that deficits be settled in a third currency, but Russia was willing to use ruble for the purpose with a view to making its local currency stronger.

Russia currently has currency swap agreements with 13 countries, but the country is not much interested in currency swaps in the wake of the conflict with Ukraine, he noted.

In this context, Russia is pursuing Bangladesh to join SPFS.

The central bank official also said the Bangladesh Bank had raised the issue as to whether Bangladesh will get an equity share of SPFS as in the case of SWIFT, but the Russian authorities replied in the negative.

The risk for the Bangladesh Bank in joining the Russian payment channel is that dispute settlements will be done as per Russian law, while SWIFT follows international law, he added.

During a recent visit to The Business Standard office, acting Russian Ambassador to Bangladesh Ekaterina A Semenova said the currency swap issue was then on the table for discussion at the Bangladesh Bank.

SPFS has been developed as an alternative payment channel for SWIFT, she mentioned, adding that local Bangladeshi banks could join this messaging system, she said.

The annual trade between Russia and Bangladesh is nearly $1 billion.

In FY21, Bangladesh's exports to Russia stood at $547 million, while imports were worth $481 million, according to Bangladesh Bank data.

Exports to Russia grew by 16.6% year-on-year to stand at $638 million in FY22. Import data is yet to be released.




Source

 

[BananaRepublicUK]

Local banks are less interested in joining this system for fear of facing US sanctions​

View attachment 864787

The currency swap arrangement between the Bank of Russia and the Bangladesh Bank has entered a new phase as Russia is willing to introduce its own payment channel for transactions with banks instead of inking a currency swap deal.



The latest development in the bilateral currency swap arrangement, initiated in 2020, is that Russia is pursuing the Bangladesh Bank to encourage local banks to join SPFS, a Russian equivalent of the SWIFT financial transfer system developed by the Russian central bank.

But banks in Bangladesh are not willing to join this system for fear of facing US sanctions as Russia has already lost access to the global payment channel SWIFT.


The issue was discussed at the recent board meeting of the Bangladesh Bank, where board members decided to go slow on joining SPFS (System for Transfer of Financial Messages) because of the reluctance of local banks, central bank sources told The Business Standard.

Besides, even though Russia is asking that Bangladesh join SPFS, a system developed only for financial transfer messaging thus far, the currency vehicle issue remains unclear, according to a senior executive of the Bangladesh Bank.



Russia could not make it clear as to how a currency will be transferred, he said, adding that banks will most probably have to touch the SWIFT system for this purpose, which is risky for them.

The two countries agreed on a currency swap arrangement in December 2020 aimed at reducing dependency on a third currency. Following the agreement the Bangladesh Bank prepared a concept paper.


According to the concept paper, the nature of the swap will be a credit line of 10 billion Bangladeshi taka for Russia and 10 billion Russian rubles for Bangladesh.


The tenure of the credit line will be three years.

The Bangladesh Bank will maintain a ruble account with the Bank of Russia having a credit line of ruble, while the Bank of Russia will maintain a taka account with the Bangladesh Bank.


Russian exporters will get their payment in ruble from the Bangladesh Bank's ruble account with the Bank of Russia based on documents submitted by their banks to the Russian central bank. Bangladeshi exporters will get their payment in taka from the Bank of Russia in the same way.

Import payments also will be settled in a similar fashion.

The reconciliation will take place on a quarterly basis and the surplus side will get its payment from the deficit side. An agreed-upon third currency or the surplus balance may be carried forward for the next cycle.

The board of the Bangladesh Bank approved the concept paper in November 2021 and sent it to the Bank of Russia the following month.

Both parties were working on the issue but Russia's approach changed after the Russia-Ukraine conflict broke out this February, said a senior executive of the Bangladesh Bank.

The senior executive of the Bangladesh Bank said during its discussions with the Russian central bank, the Bangladesh central bank demanded that deficits be settled in a third currency, but Russia was willing to use ruble for the purpose with a view to making its local currency stronger.

Russia currently has currency swap agreements with 13 countries, but the country is not much interested in currency swaps in the wake of the conflict with Ukraine, he noted.

In this context, Russia is pursuing Bangladesh to join SPFS.

The central bank official also said the Bangladesh Bank had raised the issue as to whether Bangladesh will get an equity share of SPFS as in the case of SWIFT, but the Russian authorities replied in the negative.

The risk for the Bangladesh Bank in joining the Russian payment channel is that dispute settlements will be done as per Russian law, while SWIFT follows international law, he added.

During a recent visit to The Business Standard office, acting Russian Ambassador to Bangladesh Ekaterina A Semenova said the currency swap issue was then on the table for discussion at the Bangladesh Bank.

SPFS has been developed as an alternative payment channel for SWIFT, she mentioned, adding that local Bangladeshi banks could join this messaging system, she said.

The annual trade between Russia and Bangladesh is nearly $1 billion.

In FY21, Bangladesh's exports to Russia stood at $547 million, while imports were worth $481 million, according to Bangladesh Bank data.

Exports to Russia grew by 16.6% year-on-year to stand at $638 million in FY22. Import data is yet to be released.




Source

Russia is a puny player in global trade and finance to have any sway over anything as big as a clearing house or payment system.

China will rival SWIFT when it is ready because it is a bigger player in global merchandise trade than USA. I predict the Chinese version will be crypto based.

Countries like BD need USA on a leash - given the collateral damage USA causes whenever its presidents have temper tantrums.

 

[Bengal71]

Not a good time. We should wait.

রাজায় রাজায় যুদ্ধ হয়, পিপীলিকা'র প্রাণ যায়।

 

[UKBengali]

BD should not go there as US retaliation could be very severe.

BD should look at the possibility of barter trade with the Russians - garments in return for grains and oil/gas.

 

[Bengal71]

BD should not go there as US retaliation could be very severe.

BD should look at the possibility of barter trade with the Russians - garments in return for grains and oil/gas.

Russian oil and gas are still under sanction. We shouldn't touch it with a ten feet pole.

 

[UKBengali]

Russian oil and gas are still under sanction. We shouldn't touch it with a ten feet pole.

That is why I said look at the possibility.

India and others are doing oil/gas trade with Russia already but know that India is a special case.

I think these stupid sanctions will soon collapse as soon as the cold weather comes to USA and Europe in 3 months down the line and so no harm in BD making preparations now.

 

[Bengal71]

That is why I said look at the possibility.

India and others are doing oil/gas trade with Russia already but know that India is a special case.

I think these stupid sanctions will soon collapse as soon as the cold weather comes to USA and Europe in 3 months down the line and so no harm in BD making preparations now.

US has it's own oil and gas, they don't have any incentive to remove the sanctions. The Europeans will ease sanctions to get oil and gas in the winter and US won't do anything about it. But if we do, then we will be in the receiving end of the sanctions. The US/EU westerners are hypocrites like that.

 

[UKBengali]

US has it's own oil and gas, they don't have any incentive to remove the sanctions. The Europeans will ease sanctions to get oil and gas in the winter and US won't do anything about it. But if we do, then we will be in the receiving end of the sanctions. The US/EU westerners are hypocrites like that.

Let us wait and see.

If the Russians can hold on to their gains in Ukraine , this rampant inflation continues and there is social unrest in the West, then the sanctions will have to go.

It is not just oil/gas but food/fertiliser as well

BD is a key part of the global supply chain for garments now and the US has been courting it against China.

India also has BD’s back.

Sanctioning BD is not like sanctioning a small island in the Pacific. USA/Europe can sanction BD but they may not want to go there.

PS - Remember that Hasina has already publicly criticised the sanctions and the West did not say anything.

 

[Bengal71]

Let us wait and see.

If the Russians can hold on to their gains in Ukraine , this rampant inflation continues and there is social unrest in the West, then the sanctions will have to go.

It is not just oil/gas but food/fertiliser as well

BD is a key part of the global supply chain for garments now and the US has been courting it against China.

India also has BD’s back.

Sanctioning BD is not like sanctioning a small island in the Pacific. USA/Europe can sanction BD but they may not want to go there.

PS - Remember that Hasina has already publicly criticised the sanctions and the West did not say anything.

If there is social unrest in Europe, they will soften or remove the sanctions for themselves. They probably won't do it for others.

These bloody American/European grip on the economy and transactions of the whole world gave them unprecedented power that was never there in history. They can win wars and destroy their enemies without firing a single bullet, they can hold the whole world hostage. The sooner they go down, the better for humanity.

 

[SoulSpokesman]

A discreet three way deal involving Russia, India and its friendly neighbouring countries (the BBIN bloc basically) can be worked out with an implicit go ahead from US.

Regards

 

[UKBengali]

A discreet three way deal involving Russia, India and its friendly neighbouring countries (the BBIN bloc basically) can be worked out with an implicit go ahead from US.

Regards

Yes this is the precise situation where BD and India can work together.

India helps BD here and BD can reciprocate in terms of transit to NE States etc.

 

[Bengal71]

Yes this is the precise situation where BD and India can work together.

India helps BD here and BD can reciprocate in terms of transit to NE States etc.

Transshipment is ok, not transit. Transit is a perpetual thing, why should we trade something as transit for a temporary arrangement? In fact transit should never be given to them.

 

[UKBengali]

Transshipment is ok, not transit. Transit is a perpetual thing, why should we trade something as transit for a temporary arrangement? In fact transit should never be given to them.

What is wrong with transit at the right terms and conditions?

BD exporters and importers will always have a geographic advantage anyway.

 

[BananaRepublicUK]

What is wrong with transit at the right terms and conditions?

BD exporters and importers will always have a geographic advantage anyway.

Nothing wrong with transit. But has to be on better terms e.g. teesta water.


Transit for water and BD getting transit to Nepal and Bhutan.

Transit for everyone or no one.

 

[Bengal71]

What is wrong with transit at the right terms and conditions?

BD exporters and importers will always have a geographic advantage anyway.

Nah, not everything can be commercially traded, not everything is for sale. There is no need for Indians to freely enter BD.