The Asian Development Bank will soon provide trade finance support to deals denominated in the rupee and the renminbi.

The Manila-headquartered multilateral development bank’s board of directors on Tuesday approved the inclusion of the renminbi and the rupee in its Trade Finance Programme.

The move will encourage the use of regional currencies in trade and reduce reliance on the dollar as a settlement currency, said Mr Steven Beck, Head of the Programme.

“It advances our promotion of trade in the region, which is crucial for boosting job creation and economic growth,” he said.

Currently, the Programme fills market gaps for trade finance by providing guarantees and loans to banks to support trade. Over half of the Programme’s portfolio has supported intra-regional trade.

The move will also bolster the Programme’s ability to further enhance its support for trade within developing Asia. The Programme, which has supported over $10.6 billion in trade since 2009, has been used to cover only transactions denominated in dollar, yen and euro.

Intra-regional trade in Asia in the next decade is expected to account for at least half of all foreign trade for Asian countries. At present, 90 per cent of all foreign trade in Asia is settled in dollars. But this is expected to decline.

The Programme is active in 16 countries, but focuses almost exclusively on taking risk in more challenging markets. It’s most active markets have been Bangladesh, Vietnam, Pakistan, Sri Lanka and Nepal, where market gaps are proportionately largest. So far, the Programme has never had a default or loss.

The Bank had decided to extend the Programme, which was set to expire by the end of 2013, indefinitely. The Programme’s volumes have increased by 40 per cent in the first half of this year compared with the same period last year.

krsrivats@thehindu.co.in

(This article was published on July 17, 2012)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.