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Dhaka Tribune

Why people are keeping cash outside of banks

Ongoing inflationary pressure, widespread irregularities in the financial sector and hiding illicit funds to evade oversight may act as some of the reasons behind this

Update : 09 Mar 2023, 08:10 PM

The volume of banknotes outside the banking system has grown significantly in FY23. 

Although in January it came down a bit compared to last month, it is still a matter of concern.

Economists and bankers believe that the ongoing inflationary pressure, widespread irregularities in the financial sector and hiding illicit funds to evade oversight may act as some of the reasons behind this.

According to the latest Bangladesh Bank data, the amount of paper money was Tk260,000 crore outside the banking system after the first month of the 2023 calendar year, which is nearly 24.2%.

However, it was 27.27% in December, amounting to nearly Tk270,000 crore.

Data analysis revealed that deposit growth had been on a slide, dropping to 6.14% in January 2023 year on year. 

The deposit consists of both time deposit and demand deposit. Such total deposits were approximately 9% in June 2022 over its corresponding period in 2021.

According to bankers, it usually remains within a growth bracket of 12% to 13%, as can be seen in June 2022 over its corresponding period a year before. 

Even from June 2021 to June 2022, it was 12.85%.

On the other hand, deposited money in the banking system fell a bit. It was Tk1,488,000 crore after January of 2023, which was Tk1,489,000 crore just a month earlier. In January 2022, this amount was Tk1,402,000 crore.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh told Dhaka Tribune: “The rise in cash outside the banking system becomes a matter of concern and contradicts the government's goal of establishing a cashless society.”

He explained, the reason behind this is the increase in inflationary pressure, as individuals required more cash to cover their daily expenses. 

Furthermore, it can also be attributed to the panic withdrawal by some depositors due to the disclosure of several recent banking irregularities. 

The former IMF economist also thinks that there are vast amounts of illicit funds which individuals prefer to hold in cash in order to evade oversight.

“Moreover, widespread irregularities in the financial sector have also eroded the people's confidence,” he added.

Besides, a section of people with surplus funds stayed away from banks due to lower interest rates, the bankers said.


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