The Bangladesh Bank has introduced a currency swap system with commercial banks, considering the volatility of the local foreign exchange market.
This system enables commercial banks to exchange dollars with the country’s central bank.
A central bank circular issued on Thursday regarding this matter stated that the taka-dollar swap will be for a minimum of seven days and a maximum of 90 days.
It mentioned that if commercial banks have surplus dollars, they can now borrow the same amount by depositing it with the Bangladesh Bank.
Both the Bangladesh Bank and commercial banks will benefit from this arrangement, as the banks will receive instant money against surplus dollars from the central bank.
Additionally, by returning the money after the specified time, the commercial banks will receive an equivalent amount of dollars from the Bangladesh Bank.
Under this system, a minimum of $5 or its equivalent can be exchanged, with the duration of the swap ranging from a minimum of 7 days to a maximum of 90 days.
To take advantage of currency exchange, the central bank will enter into agreements with interested banks. According to these agreements, commercial banks will deposit dollars in the Bangladesh Bank and receive an equivalent amount of taka based on the dollar exchange rate of that day.
Similarly, after the specified time, they will deposit taka and withdraw an equivalent amount of dollars based on the day’s exchange rate.
A currency swap involves the exchange of interest – and sometimes principal – in one currency for the same in another currency.
Companies doing business abroad often use currency swaps to obtain more favorable loan rates in the local currency than if they borrowed money from a local bank.
A forex swap consists of two legs or stages: a near leg date and a far leg date.
On the near leg date, one swaps one currency for another at an agreed spot foreign exchange rate and agrees to swap the same currencies back again on a future date (far leg date) at a forward foreign exchange rate.
For conventional commercial banks, the taka will be sold in exchange for approved foreign currencies at the spot rate at the near leg.
At the far leg, the deal will be settled by applying the same exchange rate with a swap point based on the interest rate differential considering the prevailing benchmark rate of foreign currencies.
For Shariah-based commercial banks, at the near leg, the taka will be sold in exchange for approved foreign currencies at the spot rate.
At the far leg, the deal shall be settled by applying the same exchange rate.
The swap deal shall be executed within the counterparty limit set by the Forex Reserve and Treasury Management Department of the Bangladesh Bank.
Each deal shall be multiples of one million of the foreign currency, starting from a minimum value of five million and equivalent taka with tenure of seven days to 90 days.
Rollover may be allowed by applying the prevailing rates, said the central bank.