Bangladesh and India on Tuesday launched a much-anticipated trade transaction in rupees, a move aimed at reducing dependence on the US dollar and strengthening regional currency and trade.

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This is the first time Bangladesh has done bilateral trade with a foreign country in addition to the US dollar.

Bangladesh Bank Governor Abdur Rouf Talukder described the start of trade settlement in rupees as the "first step in a great journey".

"The trade position between India and Bangladesh has seen remarkable growth, with both countries benefiting from their economic cooperation," he said at the launching ceremony here, which was also attended by Indian High Commissioner Pranay Verma.

The central bank governor said the transaction costs during trade with India would reduce with the introduction of the Taka-Rupee dual currency card which was "almost ready (to be) launched from September".

Bangladesh and India, however, stage frontier trading in certain areas called "border hut" in a semi-formal manner where both currencies are exchanged on a limited scale.

Officials said under the formal arrangement from now on initially, the trade would be transacted in rupee and then gradually in Bangladeshi currency Taka upon the trade gap between the two countries decreasing.

Banks in Bangladesh and India have been given permission to open nostro accounts, an account in a bank of another country for the purpose of foreign currency transactions.

Officials said the exchange rate will be determined in line with market demand and banks involved in the process.

According to the latest official data from Dhaka, exports from Bangladesh to India amount to USD 2 billion, while Bangladesh's imports from India are worth USD 13.69 billion.

Several economists, however, said Bangladesh may not be able to reap the benefits of the new system very quickly because of the trade deficit.

But Talukder said he was not just looking into this USD 2 billion export as when "we export and import in Indian rupees, it will have an effect on both countries’ exporters and importers".

"We can increase our exports manifold, because customers in India will be buying things in their own currency, considering it as their own products...It will open a new window for us in a bigger way in this (Indian) market because India is a big market,” Talukder said.

The Indian envoy said India-Bangladesh relations transformed significantly over the last decade.

"One of the most important manifestations of that transformation is our visibly growing economic and commercial ties and connectivity links," he said, adding Bangladesh is India's biggest trade partner in South Asia, and fifth largest globally.

He noted in the last five years, bilateral trade has more than doubled.

The country's exports to India have consistently crossed the one billion dollar mark consecutively over the last three years and crossed two billion dollars for the first time during the last fiscal.

India, with its diverse market, has emerged as the top export destination for Bangladesh in Asia.

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(Edited by : Keshav Singh Chundawat)