Two years ago, Hafiz Ahmed’s son went to Canada to study. Ahmed, owns a small restaurant and is entirely reliant on his enterprise to pay for his son’s education.
When his son went to Canada, the cost of dollars was relatively stable but now he has to spend Tk117 for a dollar to pay for tuition and boarding.
This dollar shortage compounded his problems as he also had to import frozen fish for his restaurant. This seems to be the case everywhere nowadays as the unpredictable dollar market is affecting various aspects of life, including business LCs, tuition fees, cost of living, medical treatment abroad, and travel.
The Taka continues to depreciate due to high demand for the dollar amid scarcity. In early August, the dollar crisis resurfaced in Bangladesh, despite price regulations. At the end of August, the authorities increased surveillance on money exchangers, banks, and the kerb market.
On September 7, the rates offered by four money changers were managed under Adamjee Court. Even though the Bangladesh Foreign Exchange Dealers Association (BAFEDA) and the Association of Bankers' Bangladesh (ABB) set the dollar price at Tk110 for banks and Tk112.50 for money exchangers, these rates were far from what was being used.
Helal Uddin Sikder, secretary general of the Money Changers' Association, expressed concerns about the lack of control in the open market economy.
He questioned how the rates were determined when the Bangladesh Bank only sold dollars to banks, not to money changers.
Helal also emphasized the need for increased remittances and export earnings to stabilize the dollar rate. He suggested that financial institutions, including money changers and banks, as well as businesses like hundi, and employees in the kerb market, should be held accountable to reduce the rising dollar prices.
Ahsan H Mansur, executive director of the Policy Research Institute (PRI), believed that attempting to regulate the market at Tk109 while the market rate was Tk118 for expatriate families was not an effective strategy.
He suggested that a market-based dollar rate would naturally boost formal remittances.
However, on August 30, the central bank suspended licenses of seven money exchanges for trading dollars at higher rates and summoned explanations from 10 more money changers for the same reason.
As a result, banks and money changers stopped selling dollars, leading to dollar prices of Tk116-117 in the kerb market on Thursday.
Selling dollars at higher prices
Some commercial banks have been selling dollars at a higher price than the fixed price for the past few weeks.
Bangladesh Bank has started asking for explanations from several banks for selling dollars at higher prices than set by the central bank. These banks sold dollars to importers and corporate customers at higher prices.
Letters have been sent to some banks asking for an explanation last Sunday and Monday.
In the letter given to the banks, it is said: “During the inspection of your bank branch, there is evidence that the dollar price against the import bill is higher than declared.”
The letter also mentions how much more money the banks have taken against the dollar than the declared price.
It is said in the letter that such actions are against foreign exchange policy and monetary policy.
Therefore, the banks have been asked to give their opinion in this regard within five working days.
Bangladesh Bank (BB) was already trying to identify those banks and sought explanations. On September 2, the central bank sent letters to 13 banks over allegations of buying and selling dollars at prices higher than the set prices by the Bangladesh Foreign Exchange Dealers Association (BAFEDA) and the Association of Bankers Bangladesh (ABB).
Bangladesh Bank's letter also mentions how much more money the banks have taken against the dollar than the declared price.
Alleged banks and Bangladesh Bank have refused to give an official statement on this regard.
A large deviation between formal and informal rates can divert remittance inflow from the official to the hundi channel, leading to potential under-invoicing of imports or informal capital outflows, bankers said.
Bankers said that they had no alternative but to acquire dollars at higher rates as they were still facing difficulties in settling import payments and opening letters of credit as the required amount of dollars remained unavailable.
Bangladesh Bank's official statement was not available as Bangladesh Bank's spokesperson Mezbaul Haque was on leave.
Seeking anonymity, a central bank officer told the Dhaka Tribune: "As alleged by the central bank, these banks are conducting business contrary to foreign exchange and monetary policies, which is a punishable offence.”
However, the central bank sources informed that letters would be sent to several other banks for the same reason.
BB officials said that the government and the central bank had implemented measures to restrict imports and control the outflow of foreign currency, which resulted in some degree of stability in the foreign exchange market.
Earlier, in 2022, Bangladesh Bank had taken action against 12 local and foreign banks on allegations of excess profit in dollars.
Of these, the heads of treasury departments of six banks were removed.
Later the central bank withdrew from that decision.
The central bank has directed spending of Tk500 crore on corporate social responsibility (CSR) with excess profit in dollars.
Depleting reserves
The depletion of foreign exchange reserves, sluggish remittance inflows and stagnant export earnings are contributing to the imbalance in the foreign exchange market.
The dominance of the informal hundi market, where unofficial currency trading occurs, also plays a role in exacerbating the crisis.
Bangladesh Bank recently showed a concerning picture of a 21.57% remittance drop in August, the lowest six months, whereas the country received nearly $2.04 billion in remittances through official channels in August last year.
Not only that, this August saw the lowest remittance inflow in comparison to any August in the last four years.
This decrease might put additional pressure on the already dwindling foreign currency reserves, some experts fear.
Over the past 26 months, the central bank sold about $23 billion from its reserves, including $2 billion to banks in July-August of the current financial year 2023-24, $13.5 billion in FY23 and $7.62 billion in FY22, highlighting the high demand for dollars and the limited supply on the market.
However, these dollar sales have inadvertently led to a reduction in the foreign exchange reserves of the Bangladesh Bank while creating a liquidity crisis in the banking sector.
The foreign currency reserves in Bangladesh dropped to $29.2 billion on August 31 from $41.82 billion in June 2022.
The gross foreign exchange reserve in Bangladesh, according to the guideline of the International Monetary Fund, dropped to $23.06 billion on Tuesday
