Dollar Surplus in Banks

BB buying dollars to keep currency market stable

Anisul Islam Noor

23 October, 2020 12:00 AM printer

Bangladesh Bank (BB) is purchasing dollars from banks though the country’s foreign exchange reserves exceeded the $40 billion mark.

Banking sector insider and economists said despite a strong reserve gathering, the central bank has to buy dollars to keep the currency market stable.

According to bankers, the currency market has surplus dollars as the demand for foreign currency declined due to a fall in imports and international travels by Bangladeshis amid the ongoing pandemic.

Bangladesh Bank is buying dollars from schedule banks in the interest of stabilizing the foreign exchange market. The central bank is giving local currency to banks against the dollar. In this way, the flow of money in the domestic currency market is increasing.

At the same time, inward remittance inflow is increasing. Banks are channelling dollars as foreign remittance and sending those the central bank as they are unable to use foreign currency as well.

In the first three months of the current fiscal year, BB bought dollars worth $3 billion and released Tk 250 billion as cash liquidity in the market.

In the banking sector it is known that if the central bank releases one taka, the market is affected by it 7.5 times.

Amid a fall in the demand for investment in the country and banks adopting a slow-moving policy to monitor the current situation, every bank has surplus dollars.

Economists said in such circumstances, the inflation rate will go up which may affect common people’s purchasing capacity.

According to the policy of Bangladesh Bank, a bank can hold 15 per cent of its capital in foreign currency. Also, banks will have to sell dollars in the currency market.

In normal circumstances, Bangladeshis spent a huge amount of foreign currency on medical treatment abroad. But outward medical tourism plunged over the last six months amid the global pandemic.

Besides, every year the pilgrims spend a huge amount of foreign currency to perform the holy Hajj. But this year it did not happen because of Corona.

Due to loss of job or preparation of returning to home, many Bangladeshi expatriates are sending the money they have saved in abroad.

The volume of foreign loans and foreign grants are also maintaining an upward trend. The amount of foreign currency that is coming is not being spent due to the stagnation of economic activities.