Noticing the expanding influence of the economies of China and India among the Asian economies, the Asian Development Bank (ADB) decided to encourage and support deals denominated in their local currencies under its Trade Finance Programme (TFP) as intra-regional trade transactions using the Renminbi and the Rupee are projected to increase.
It is a remarkable change as the TFP, hitherto, used to cover transactions denominated only in the US dollar, the Japanese yen and the euro.
On account of widening trade finance gaps, tight credit supply and tougher regulatory requirements, ADB has decided to extend the TFP for an indefinite period.
What is Trade Finance Programme (TFP)?
- TFP is a programme under Asian Development Bank with an objective to fill the market gaps for trade finance by providing guarantees and loans to banks to support trade. ADB collaborates with 200 partners to provide companies with the financial support they require to carry on import and export operations in Asia’s most challenging markets.
In how many countries is TFP active?
- It is active in 16 countries. Five most active countries are Bangladesh, Nepal, Pakistan, Sri Lanka, and Vietnam
How will the move affect the trade scenario?
- The decision is expected to fill the market lacunae for trade finance by providing guarantees and loans to banks to support trade. It will promote the use of regional currencies in trade and reduce the dependency on the U.S. dollar as a settlement currency, which is not meeting the demand in several economies. Currently, 90 % of all foreign trade in Asia is settled in U.S. dollars, but this percentage is expected to shrink.