Bangladesh Bank has opened a new avenue for settling eligible cross-border trade transactions in Bangladeshi Taka, allowing authorised dealer (AD) banks to use Taka balances held in Non-Resident Taka (vostro) accounts maintained for correspondent banks in trading partner countries.

The central bank issued a circular on Wednesday outlining the new arrangements for operating such vostro accounts, expanding the mechanisms available for settling international trade transactions.

Under the existing system, AD banks could open Taka vostro accounts for their overseas branches and correspondent banks against inward remittances received in freely convertible currencies.

According to the new circular, balances maintained in these accounts can now be used to settle export proceeds from Bangladesh and other permitted transactions.

Letters of credit (LCs), contracts and invoices will continue to be denominated in freely convertible or other admissible currencies. However, the invoiced amounts will be converted into Taka at the prevailing exchange rate for settlement through the respective vostro accounts.

Bangladesh Bank has also allowed advance payments for eligible imports and exports under the arrangement, subject to compliance with existing foreign exchange regulations.

The facility will allow exporters receiving their proceeds in Taka to remain eligible for foreign-currency retention facilities, where applicable. These facilities can be used, among other purposes, to meet import payments for inputs and repay Export Development Fund (EDF) loans.

The circular also allows surplus Taka balances held in vostro accounts to be used for permitted investments in Bangladesh, including foreign direct investment (FDI), foreign portfolio investment (FPI), alternative investment funds and open-end mutual funds, subject to prevailing regulations.

The new arrangement is expected to facilitate greater use of the Taka in cross-border trade with suitable trading partners while providing exporters, importers and correspondent banks with an additional mechanism for settling international transactions.

It could also help diversify Bangladesh's trade-settlement channels and reduce dependence on third-country currencies in transactions where trading partners agree to use the Taka-based mechanism.