Dhaka, Moscow agree to settle Rooppur payments in Chinese yuan

[Black_cats]

Dhaka, Moscow agree to settle Rooppur payments in Chinese yuan

ECONOMY​

Jebun Nesa Alo & Saifuddin Saif
13 April, 2023, 10:30 pm
Last modified: 13 April, 2023, 11:33 pm

Infographic: TBS
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Infographic: TBS
Bangladesh is set to make loan repayment for the Rooppur Nuclear Power Plant project to Russia in yuan as US sanctions on Russian banks have forced the two nations to settle payments using the Chinese currency, moving away from the US dollar.

The decision was made on Thursday in a meeting between the Economic Relations Division (ERD) and Russian officials following a request by Moscow in March last year to halt loan repayments after losing access to the global payment channel SWIFT due to Western sanctions.

Under the new arrangement, Bangladesh will make payment settlements with Russia through a Chinese bank, and Russian beneficiaries will receive payments using China's Cross-Border Interbank Payment System (CIPS), a limited alternative to SWIFT for yuan-based payments.

SWIFT is a Belgium-based secure messaging platform that facilitates cross-border payments.

According to the ERD meeting, there is currently an installment of $318 million repayment pending against a total loan of nearly $12 billion that Russia provided for the Rooppur project.

The meeting decided that Bangladesh will pay a maximum commitment fee of $2.5 million yearly, if the yearly allocated loan portion remains unused.

Under the loan agreement with Russia, Bangladesh had to pay a commitment fee of 0.5% on unused allocation. If the Russian contractors who are implementing the project fail to use the allocation, Bangladesh has to pay a commitment fee.

Every year, Bangladesh had to pay a commitment fee of around $4 million for the failure of Russian contractors to use the allocated portion, which was a significant cost despite not being Bangladesh's fault.

In this context, Bangladesh decided to pay up to a $2.5 million penalty yearly, even if the amount goes higher.

Russia is providing loan assistance for the construction of the Rooppur nuclear power plant in Bangladesh, and the project is being implemented by a contractor led by Rosatom State Atomic Energy Corporation.

Repayment of some part of the loan for this project has begun, and it is being done through Sonali Bank. Pay of Russian workers in Bangladesh is also being paid through the banks.

However, due to the SWIFT ban, Russian banks have stopped all transactions.

In 2020, Moscow offered Dhaka a bilateral currency swap arrangement for trade settlement, but the move was put on the back burner following US sanctions.

Russia then offered Bangladesh Bank to join the SPFS, a payment channel developed by Moscow, but Bangladeshi banks were unwilling to join. Bangladesh proposed that Russia settle trade in the Chinese currency as yuan became a reserve currency in 2018.

In response to that, Russia claimed a conversion loss of currency, which the Bangladesh Bank did not agree to pay. After lengthy discussions, both countries have now agreed to settle trade in yuan, also known as renminbi.

Md Mezbaul Haque, executive director and spokesperson of Bangladesh Bank, stated that the central bank had several meetings with Russia about the payment method as loan repayments remained suspended after US sanctions.

The central bank sent the final proposal to the ERD and it has not received any decision yet. Therefore, he refused to make any further comments in this regard.

How payment will be made

Bangladeshi banks will make payments only in yuan to any Chinese bank and the Russian beneficiary will receive the payment and convert it to ruble at their own cost.

Chinese CIPS will be used as the payment channel as China is already using this channel with Moscow, according to Bangladesh Bank officials.

The Bangladesh Bank has already opened a window for yuan transactions by allowing banks to maintain an account in yuan with their corresponding branches abroad to settle cross-border transactions in the Chinese currency in September last year.

Bangladeshi exporters were also allowed to hold yuan in their export retention quota for trade settlement in Chinese currency.

These developments came after China offered a currency swap agreement between the Bangladesh Bank and the People's Bank of China, its central bank, for using both renminbi and taka as currencies of pricing and settlement in bilateral trade in August last year.

The Bangladesh Bank has been building up the share of yuan in its foreign exchange reserve, cutting down the share of dollar as the Chinese currency is gaining acceptance faster in global markets for international payments as an alternative to the greenback.

The share of yuan in Bangladesh's foreign exchange reserve increased to 1.32% in August last year from 1% in 2017 when the dominating US dollar reserve fell significantly to 75% from 81% during the period, according to Bangladesh Bank data.

The share of yuan has been growing steadily in the country's foreign exchange reserve after the Chinese currency was included in the Special Drawing Rights (SDR) currency basket of the International Monetary Fund (IMF) in 2016.

The IMF included the yuan in its SDR basket as a fifth currency, along with the US dollar, the euro, the Japanese yen, and the British pound. The inclusion in the SDR basket means the yuan is now an internationally convertible currency.

At present, the Chinese yuan ranks third in terms of weight in the SDR basket, after the US dollar and the euro.

The Bangladesh Bank declared the yuan as an approved currency for reserve holding sometime after and started to build up the share of Chinese currency in the reserve, aiming to facilitate foreign investors amid rising business engagement with China.

Other trade settlements with Russia will be in yuan

Bangladesh is in talks with Russia about exporting potatoes and other items which will be also settled through China's currency, according to Bangladesh Bank officials.

Bangladesh has decided to resume the export of potatoes to Russia this year but it was not finalised due to uncertainty in payment.

Earlier in February this year, Agriculture Minister Muhammad Abdur Razzaque told journalists, "Prior to imposing a ban by Russia on exports of the vegetable, a huge amount of potatoes were exported to that country. As it has lifted the ban recently, we shall export potatoes again."

He made the remark after meeting with the Russian Ambassador to Dhaka Alexander Mantytskiy.

The minister also said alongside potatoes, Russia expressed its interest to import mangoes, cauliflowers, and cabbages from Bangladesh.

How Russia is relying on ruble and yuan for cross-border payments

According to a Nikkei report, Russia has increasingly been relying on the yuan and the ruble for cross-border payments and financing since the war with Ukraine about a year ago.

Western sanctions have limited Russia's access to the dollar and the euro. Last March, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) disconnected several major Russian banks from its global settlement network over the war.

As of September, the dollar and the euro accounted for only 34% and 19% of Russia's export payments, respectively, down from 52% and 35% before the sanctions took effect in January.

Although certain payments for Russian gas are still being made in dollars and euros, including through Gazprombank, a subsidiary of state oil and gas company Gazprom that is exempt from the SWIFT ban, a growing proportion of payments (47% as of September) are being made using the yuan and the ruble.

Gazprom has switched gas exports to China to the yuan and the ruble from the dollar. Some European importers are also now paying in rubles.

European sanctions on Russian oil have fueled a rise in exports to Asia, further accelerating a shift toward the yuan.

Dhaka, Moscow agree to settle Rooppur payments in Chinese yuan

Bangladesh is set to make loan repayment for the Rooppur Nuclear Power Plant project to Russia in yuan as US sanctions on Russian banks have forced the two nations to settle payments using the Chinese currency, moving away from the US dollar. The decision was made on Thursday in a meeting...

www.tbsnews.net

 

[bluesky]

But where does BD get so much of Yuan when BD imports more Chinese goods than it exports?

Can someone clarify the matter? Do you guys think China will lend Yuan to BD and BD makes payment to Russia?

 

[Destranator]

But where does BD get so much of Yuan when BD imports more Chinese goods than it exports?

Can someone clarify the matter? Do you guys think China will lend Yuan to BD and BD makes payment to Russia?

We have to first buy Yuan in exchange for international currencies like USD, Euro, etc.

 

[Homo Sapiens]

We have to first buy Yuan in exchange for international currencies like USD, Euro, etc.

Our export to China alone will suffice the Russian payment in yuan if we accept yuan from China instead of US Dollars. Yearly loan payment would be around half a billion Dollars, which is lower than our export figure to China.

 

[Destranator]

Our export to China alone will suffice the Russian payment in yuan if we accept yuan from China instead of US Dollars. Yearly loan payment would be around half a billion Dollars, which is lower than our export figure to China.

It is not that simple. Bangladeshi exporters may demand payment in mainstream currencies for various reasons.

 

[bluesky]

Our export to China alone will suffice the Russian payment in yuan if we accept yuan from China instead of US Dollars. Yearly loan payment would be around half a billion Dollars, which is lower than our export figure to China.

Yes, you are right if BD exports are surplus compared to its imports from China. But, BD exports very few commodities and imports very large quantities. So, it is a deficit trade for BD.

So, I do not think BD will be getting hold of surplus Yuan. However, I thought out one novel plan. BD pays in dollars to China but China pays in Yuan to BD. And, BD pays this Yuan to Moscow for its Rooppur plant.

 

[Chute]

BD pays in dollars to China but China pays in Yuan to BD. And, BD pays this Yuan to Moscow for its Rooppur plant.

Yup, that is very likely how it will end up going.

Essentially BD will start to hold Yuan in its forex reserves in some larger degree going forward....rather than ask for USD.

Yuan is convertible in current account, so it poses little problem if BD opts for this and sets financial procedures for its companies and banks that interact the most with PRC (i.e mostly importers as you have mentioned given our trade balance)....

PRC does enforce convertibility restrictions, but that is on capital account side.

 

[beijingwalker]

China is very patient to dethrone dollar, one country at a time, China doesn't intend to make Yuan a dominant money, she just likes to weaken US dollar to an extent so in the future dollar won't be able to threaten China like it is now to Russia.

 

[bluesky]

China is very patient to dethrone dollar, one country at a time, China doesn't intend to make Yuan a dominant money, she just likes to weaken US dollar to an extent so in the future dollar won't be able to threaten China like it is now to Russia.

No one with rational mind would think of dethroning dollar to establish Yuan. It is Moscow that wants payment in Yuan instead of dollars because Moscow has little uses for dollars because of the US trade sanctions on it.

 

[Homo Sapiens]

China is very patient to dethrone dollar, one country at a time, China doesn't intend to make Yuan a dominant money, she just likes to weaken US dollar to an extent so in the future dollar won't be able to threaten China like it is now to Russia.

It would be impossible if China can not surpass USA in nominal GDP, which is currently 26 Trillion vs 19 Trillion now. There is a strong suggestion that, China may never surpass USA in nominal GDP. Population decline and slowing down of economy will prevent that milestone. If this happen, then Yuan would not even reach anywhere near to being co-equal to US Dollar, let alone 'dethrone' it. There was a time, when it was thought that, Euro will dethrone US Dollar or become at least co-equal. But nothing of that sort of thing happened.

 

[beijingwalker]

It would be impossible if China can not surpass USA in nominal GDP, which is currently 26 Trillion vs 19 Trillion now. There is a strong suggestion that, China may never surpass USA in nominal GDP. Population decline and slowing down of economy will prevent that milestone. If this happen, then Yuan would not even reach anywhere near to being co-equal to US Dollar, let alone 'dethrone' it. There was a time, when it was thought that, Euro will dethrone US Dollar or become at least co-equal. But nothing of that sort of thing happened.

Dollar based nominal GDP now becomes meaningless after US manipulation by moving up and down interest rates and driving up inflation to record high, China cares more about quality GDP , trade and supply chain.

Real Sector GDP VS Total GDP​

US vs. China: Measuring Real Economic Power​

Published: Monday, December 6, 2021

Gross Domestic Product (GDP) is a basic measure of the overall size of a country's economy and is often used to compare different countries' economic power. But what exactly is compared when someone says that the GDP of country A is larger than the GDP of country B?

The System of National Accounts (SNA) of the United Nations defines GDP as a monetary value of final goods and services — that is, what end users actually purchase — produced in a country, along with some non-market "production" such as defense or education services provided by governments, during a specific period of time (say a quarter or a year).

As the UN definition of GDP implies, the whole economy can be divided into two major sectors: the so-called real sector, which includes production of goods and real assets, and the services sector, which includes production of services, everything from banking to education to healthcare.

This dashboard uses U.N. data to analyze the economic powers of countries measured solely by the ability of the economy to produce goods and real assets like infrastructure, dwellings and nonresidential buildings, and machinery and equipment. We estimate GDP produced in the real sector of an economy as a sum of value added in four broad economic activity groups: Agriculture, Industry, Construction, and Transportation and Communications.

Why the focus on the real sector? The strength of the real sector reflects two of the basic characteristics of an economy that determine its ability to successfully compete in a world of rising tensions between major powers: self-sufficiency and military power. The third basic economic factor affecting a country's competitiveness — the availability of resources — is not considered here.

• Using real sector GDP in cross-country comparison of economic power significantly changes the view of the global economic landscape. The U.S. economy, which is the world's largest economy when measured by total GDP at current US dollars, is more than $500 billion smaller than China's when measured by real sector GDP.
• In 2019*, the ten largest economies in terms of real sector GDP included Russia, Korea and Indonesia. In the ranking by total GDP, these countries are lower down the list, and Italy, Brazil, and Canada round out the top ten.

Note: 2019 is currently the latest available year in the U.N. National Accounts Main Aggregates Database

 

[Black_cats]

Bangladesh Agrees to Pay $300 Million to Russia in Yuan​

Wed 19 Apr 2023 | 01:20 AM

Bangladesh has agreed to pay Russia $300 million in yuan to settle the construction of the nuclear power plant near the capital, Dhaka, according to two officials familiar with the matter.

The two officials, who declined to be identified, said that the payment mechanism was communicated during a meeting that took place last week.

They explained that Russia had initially refused to accept payment in yuan due to fears of possible losses in currency conversion, and insisted on payment in roubles.

The nuclear power project is a key factor for future energy security, as Bangladesh faces frequent power outages and increased demand from businesses and homes.

The $12.65 billion nuclear power plant in the central Pabna district, about 140 kilometers west of Dhaka, is being built with the help of Moscow's state-owned nuclear power company, Rosatom, and funded by a Russian loan.

Both officials said Russia is still pushing for an alternative payment system for trade and business.

Moscow has asked Bangladesh to open a direct financial channel between the central banks of the two countries to facilitate the transfer of funds facing obstacles resulting from the sanctions imposed on Moscow over its war in Ukraine.

It also suggested that Dhaka consider a variety of options, including establishing a currency swap agreement, using the rouble in trade settlements, and enabling the Russian Central Bank's messaging system to facilitate bilateral trade and investment.

Bangladesh Agrees to Pay $300 Million to Russia in Yuan | Sada Elbalad

Bangladesh has agreed to pay Russia $300 million in yuan to settle the construction of the nuclear power plant near the capital, Dhaka, according to two officials familiar with the matter.

see.news

 

[VikingRaider]

Master piece idea , we will slap corrupted USA!