Obtaining cash dollars through banks and authorised money exchangers has become increasingly difficult leaving. In recent days, the kerb market for currencies has witnessed an extraordinary surge with the US dollar rate soaring to a painful Tk120 in trading.
Efforts made by the Bangladesh Bank and various law enforcement agencies to reduce the price of cash dollars have essentially brought formal transactions in money exchange offices to a standstill. Many of these offices are now dealing with buyers who are willing to meet their offered rates.
Consequently, the pressure has shifted to the card market, as evidenced by the escalating number of transactions, increasing transaction values, and a surge in the issuance of new cards over the past 12 months, as per data from the Bangladesh Bank.
In July, the volume of card transactions hit an unprecedented peak, surpassing 9.65 lakh transactions. Simultaneously, the transaction value reached an all-time monthly high of Tk769 crore, marking a substantial increase from the 7.61 lakh transactions valued at Tk543 crore in June and reflecting nearly a 50% surge compared to the figures from the previous year.
The head of the card division at a bank told The Business Standard that, on average, 70% of dollar transactions are conducted through credit cards, with the remaining handled via debit.
The head of the card department at another bank added, "There are several conditions to obtain a credit card. Therefore, we issue prepaid cards to new customers who seek to acquire dollars."
According to the central bank's data, 42.69 lakh prepaid cards were issued up until this June, with 24 lakhs issued in the last year alone, indicating a 133% increase in new prepaid card issuance. Credit card issuance also rose by 13% over the past year.
According to Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, there has been a significant decline in the inflow of cash dollars into the banks compared to previous times.
"Individuals who used to sell their dollars to us after returning from abroad have reduced such transactions. A substantial portion of these individuals is opting to retain their dollars, anticipating further increases in value," he said.
"Consequently, if the supply of dollars in the bank does not increase with the growing demand, it becomes challenging for the banks to fulfil the customers' requirements."
Even a month ago, cash dollars could be bought at a Tk112-112.50 rate in the kerb market. The prices have been increasing in this market for the last two weeks and were traded at Tk118-120 on Tuesday.
TBS visited half a dozen exchange houses last week and discovered that none of the sellers were publicly advertising the current exchange rate. Instead, most of these exchange houses were offering to source dollars from other locations, if one was willing to pay a higher rate.
On Thursday afternoon last week, a TBS reporter contacted a money changer located in Dilkusha on the phone. Initially, the seller claimed to have no dollars available. However, when the reporter insisted on an urgent need for cash dollars, the seller offered dollars at a rate of Tk118. The seller, however, requested the transaction to take place outside their office premises.
Helal Uddin Sikder, secretary general of the Money Changers' Association, told TBS that banks are presently selling cash dollars at significantly elevated prices. This upward trend in the dollar's value is universal.
Nevertheless, he asserted that the price of cash dollars decreased on Tuesday.
He explained that the demand pressure is more than the supply of cash dollars. This is causing the high rates at the money exchange.
"If the authorities force us to cut the price severely, it will be difficult for us to be in business."
Helal went on to claim that some banks are selling cash dollars at rates higher than what they agreed on. "We have found that some banks are selling cash dollars at a higher rate than the price given on their websites. Now if banks are selling dollars like this, why are we being pressured?"
He also clarified that banks say they are selling dollars for imports at a maximum rate of Tk110, but in reality, they are selling them at rates between Tk115 and Tk116.
According to him, it is reasonable for exchange rates to be slightly higher in the open market compared to banks, especially since the central bank had granted them permission to sell dollars Tk1.50 higher than the official bank rate.
Crisis of cash dollars in banks
According to data from the Bangladesh Foreign Exchange Dealers' Association (Bafeda) last Thursday, cash dollars are being sold at an average rate of Tk 111 and maximum rate is Tk113 per dollar. But getting dollars in the banks has become impossible, according to customers.
TBS contacted at least six banks in the last two weeks, five of them said they did not have cash dollars.
One of these banks said they had cash dollars. However they said they were only selling to bank customers on several conditions.
An official of this bank said that the students going to study abroad need to send tuition fees through us and they needed cash dollars. "We always try to accommodate them," he said. Besides, some receive cash dollars based on bank relationships.
"Although we have several Authorised Dealer (AD) branches, not all of them have cash dollars. 2-3 branches are currently selling cash dollars, he said.
Have Bafeda, ABB messed up?
Dr Birupaksha Paul, former chief economist of the Bangladesh Bank, observed that even though the authorities had said that the exchange rate would be market-based, it is not totally market-based, rather it is controlled by groups i.e. Bafeda and the Association of Bankers, Bangladesh (ABB).
He questioned the role of Bafeda and ABB in determining exchange rates, stating, "Who are Bafeda and ABB? Are they market reflectors? Not at all."
Currently a professor of economics at the State University of New York at Cortland in the US, he made a pointed analogy, likening the situation to a lack of genuine market forces, much like the controlled environment found in North Korea.
Furthermore, he pointed out a significant discrepancy between policy announcements and actual implementation, describing it as "policy hypocrisy."
He emphasised that while the authorities proclaim a market-based approach, they do not effectively implement it in practice.
"The Bangladesh Bank has been suffering for this and will continue to suffer. It has to adjust the exchange rate as per exactly what is happening in the market. Even then, some hundi will remain for convenience, speed, and no bureaucratic complications etc."
Drives by law enforcers unearth grey markets
The National Security Intelligence Service (NSI), Bangladesh Financial Intelligence Unit (BFIU), Bangladesh Bank, and Criminal Investigation Department (CID) started a joint operation on 30 August to reduce the price of cash dollars in the open market.
About 1.70 lakh US dollars, 30,000 Canadian dollars, and 38 lakh taka were recovered during the day's operation, and several people involved in hundi business were arrested.
On the same day, in a special inspection, the Bangladesh Bank suspended the licence of eight money changers and asked 10 organisations for an explanation of irregularities in dollar trading.
The money changers have been accused of selling dollars at higher rates than the money changers' association, making false reports to the central bank, and not reporting regularly.
Last Thursday, a joint operation was conducted to check irregularities in five money changers in the Adamji Court area in Motijheel.
However, the law enforcement drives have made a chilling effect on the owners and employees of money changers.
Leaders of the money changer association met Bangladesh Bank officials on Sunday and requested them to reconsider the suspension decision of eight money changers. The central bank told the money changers to apply for reconsideration as per the rules.
When asked about the impact of the joint operation on the cash dollar market, Bangladesh Bank Spokesperson and Executive Director Md Mezbaul Haque told TBS that the market has normalised somewhat. "As we have seen, both buying and selling in the cash dollar market have fallen. It may take some time for the market to fully normalise," he said.
Regarding the complaints of money changers, he said, "The money changers were buying and selling dollars at abnormal prices, which is why we have brought them under surveillance. If their normal business is to sell the dollar overpriced, it cannot be avoided. They have to do business within the law."
Reasons behind increase in demand for cash dollars
According to industry insiders, the demand for cash dollars usually increases during festivals such as Eid, Puja, and Hajj or the starting semesters of foreign universities and these are the primary reasons for the present Surge in demand for the greenback as well.
Secondly, some individuals are diverting their savings into cash dollars instead of depositing them in banks, given the prevailing low interest rates. The continually rising value of dollars promises them significant profits. However, this has resulted in a scarcity of cash dollars within the banking system.