The amount of cash held outside banks increased for the third consecutive month in January to reach Tk257,295 crore.
This marked a rise from Tk254,860 crore in December, Tk248,441 crore in November and Tk245,943 crore in October, according to Bangladesh Bank data.
The Bangladesh Bank data showed a consistent upward trend in the volume of currency held outside banks since October 2021, when it stood at Tk205,895 crore.
This trend has implications for the country’s monetary policy, liquidity management and overall economic stability, necessitating close monitoring and potential policy interventions to address the underlying issues.
The increase in cash holding outside banks has also had an impact on the liquidity situation within the banking system.
Excess liquidity in banks dropped to Tk163,000 crore in December, reflecting a decrease in funds available for lending and investment activities.
The liquidity declined further as the Bangladesh Bank sold approximately $30 billion to the country’s banks from its foreign exchange reserves to address a severe dollar shortage in the banks over the past 32 months, which in turn, mopped up an equivalent amount of local currency.
One of the primary reasons cited by bankers for this surge in cash withdrawal is high inflation prevailing in the country.
Bangladesh’s overall inflation rate reached 9.67% in February, remaining over 9% for the past 12 consecutive months, driven by recent economic woes.
Bankers said that the country’s economy has been struggling for a range of adverse factors, including global supply chain disruptions, a hike in raw material prices, currency devaluation and a local commodity price spiral, following the Russia-Ukraine war that began in March 2022.
Another contributing factor to the rise in cash outside banks is the erosion of trust in the country’s banking sector due to loan irregularities and scandals in several banks, they said.
Besides, a significant portion of economic activity occurs in the informal sector in the country and people prefer to use cash for transactions to avoid taxes or regulatory scrutiny, they said.
