Every year, a quiet but expensive ritual takes place within the vaults of Bangladesh Bank. Thousands of crores in physical banknotes, worn thin by the friction of a million hands, are withdrawn from circulation and destroyed. The cost of this cycle, from the high-security printing of new notes to the logistical burden of transporting and eventually incinerating them, is staggering.
Bangladesh Bank's outgoing governor estimated this drain at approximately Tk20,000 crore annually, a figure that encompasses not merely ink and paper but the entire ecosystem of printing, distribution, armed security escorts, counterfeit detection, and final destruction.
To appreciate the true weight of this number, consider what it represents in terms of national priorities.
Bangladesh's entire health budget for FY2025-26 stands at Tk41,908 crore. The Tk20,000 crore we spend simply managing the physical existence of cash is nearly half of what this country allocates to keep its 170 million people healthy.
It is enough to double the government's annual spending on free medical services for the poor. It is sufficient to build and fully equip hundreds of district hospitals or to fund universal childhood immunization for an entire generation.
Directed toward education, it would come close to matching the full allocation for primary and mass education in the current fiscal year. In an economy navigating stubborn inflation and strained foreign reserves, spending such a sum merely to maintain the medium of exchange is a structural indulgence we can no longer afford.
Our reliance on physical currency is not just a logistical headache. It is a hidden tax on our national growth that crowds out the very investments our people need most.
The issue of mattress money
The true cost of our cash dependency lies in the shadows rather than at the printing press. Bangladesh remains a heavily cash-dependent society. As of mid-2025, nearly Tk2.96 lakh crore sits outside the formal banking system, a figure that has climbed relentlessly since late 2021, fueled by a combination of persistent inflation, eroded public trust in banks following revelations of large-scale loan irregularities, and election-related cash demand.
This is what economists call mattress money: Wealth that sits idle, evading the productive cycles of investment and credit creation.
When currency outside banks represents over 15% of broad money, well above the 10% that economists consider appropriate for an economy at Bangladesh's level of development, it signals deep institutional failure.
The informal economy still accounts for roughly 85% of our workforce and contributes significantly to national output, yet operates almost entirely in cash.
Cash is the silent partner of this opacity. It is the lifeblood of bribery, the currency of the underground real estate market, and the vehicle through which billions in black money distort asset prices.
When a transaction leaves no digital footprint, accountability becomes a ghost, and the state pays for that invisibility in uncollected revenue and untaxed wealth.
For the newly elected government, the roadmap to fiscal stability must pass through the digitization of the Taka. Bangladesh's tax-to-GDP ratio stands at approximately 7.3-7.5% in FY2024-25, a figure the World Bank describes as among the lowest in the world and less than half the 15% minimum considered necessary to finance essential development needs.
The National Board of Revenue, under pressure from the IMF as a condition of its ongoing $4.7 billion loan program, has set a target of raising this ratio significantly over the coming decade, an ambition that is mathematically impossible without first making the hidden economy visible.
Revenue collection is stagnant, with the NBR missing its FY2025 target by nearly 20%. Meanwhile, the government's own estimates suggest that $15-20 billion is lost annually to money laundering and illicit financial flows.
We cannot solve these structural weaknesses overnight, but we can begin by shrinking the space in which they operate.
Transitioning to a cashless society is not merely a technological goal for the sake of modernity. It is a fundamental governance strategy. By moving transactions into a recorded digital ecosystem, we can potentially expand our tax net by millions of individuals who currently operate entirely outside the formal reach of the NBR.
Lessons from India
We need only look across our border to understand both the blueprint and the political will required. Before the launch of India's Unified Payments Interface in 2016, that country too was overwhelmingly cash-dependent, with over 90% of transactions conducted in physical currency.
The National Payments Corporation of India, a government-backed non-profit, built an open and interoperable platform connecting every bank account to every merchant through a single interface.
The results have been transformational: India now accounts for nearly 49% of all real-time digital payment transactions globally, and studies estimate that digital payments contributed approximately 1.5% to India's GDP over a six-year period.
The critical lesson is not merely technological but institutional. UPI succeeded because the government treated digital payments as public infrastructure, not a commercial product.
In Bangladesh, the seeds have been sown. MFS transactions reached a historic Tk17.37 lakh crore in 2024, representing a 28% year-on-year surge, with daily transaction volumes running at around Tk5,000 crore. There are now over 238 million MFS accounts, with more than 130 million of them held by people in rural areas, testament to the reach of bKash, Nagad, Rocket, and their peers.
Yet reach and depth are not the same thing. While a corporate executive in Dhaka uses a credit card for dinner, a restaurant owner in a district town likely still lacks a point-of-sale (POS) machine. The vision for a truly digital Bangladesh will remain a slogan until a rickshaw puller in Sylhet and a wholesaler in Khatunganj can transact with the same digital ease as a banker in Motijheel.
Bridging the digital divide
To bridge this gap, the government must move from spectator to active architect of a unified digital ecosystem. This requires dismantling the current silos where MFS providers, commercial banks, and payment gateways do not fully interoperate with one another.
A customer should be able to pay from any bank app or mobile wallet to any merchant, regardless of which gateway either party uses, applying the same interoperability principle that made UPI unstoppable. Bangladesh Bank's own payment systems roadmap points in this direction, but regulatory intent must translate into enforceable standards and deadlines.
Fiscal incentives must also play a role. VAT exemptions on digital payments, the removal of high import duties on POS hardware, and subsidized smartphone access for micro-merchants would accelerate adoption far faster than any regulatory mandate.
Furthermore, lessons from MFS sector governance failures, including the financial irregularities that prompted Bangladesh Bank to place Nagad under an administrator in 2024, must inform a stronger consumer protection regime.
Citizens fear that digital money is vulnerable to hackers or that their transaction data will be weaponized for overzealous taxation. These fears are rational and will not be dispelled by rhetoric alone.
Only robust cybersecurity standards, transparent data privacy legislation, and genuinely independent regulatory oversight can move money from the mattress to the mobile device.
There is also a longer-horizon opportunity that Bangladesh should begin studying seriously: The central bank digital currency (CBDC), or a digital Taka. Bangladesh Bank has acknowledged the concept, and several peer economies, including India, which piloted its digital Rupee in late 2022, are actively exploring this space.
A well-designed CBDC would not replace MFS platforms but complement them, providing a state-backed, universally-accessible digital currency that could be held and transacted by anyone with a basic phone. For a country where financial inclusion remains incomplete, a digital Taka could be the instrument that closes the last mile.
The transition to a cashless society is ultimately a transition toward a more honest and efficient Bangladesh. As the country approaches its graduation from least developed country status, our competitiveness will increasingly depend on the efficiency and transparency of our domestic economy.
An economy that hemorrhages revenue through informality, that spends nearly half its health budget simply maintaining the physical presence of money, and that cannot bring its citizens reliably into the formal financial system, is poorly positioned for the demands of that next chapter.
By formalizing the informal and digitizing the everyday, by building the interoperable infrastructure that enables a tea vendor in Barisal to accept payment from a QR code as naturally as a Gulshan boutique, we can create an economy that is not only more dynamic but also more equitable and more legible to the state.
The era of the paper trail must now give way to the era of the digital pulse. The question is no longer whether Bangladesh can afford this transition. It is whether we can afford to delay it any longer.
Mamun Rashid is a financial sector professional and commentator on Bangladesh's economy.
