Banks shift away from dollar pegs  

Banks are transitioning away from enforcing fixed price for dollars in bid to overcome dollar crisis.

Some banks are now buying remittances at Tk 5-6 more than the declared rate. Banks are setting this dollar price based on informal advice from the Bangladesh Bank.

Consequently, the per-dollar price of remittances has increased to Tk 115-116. 

A significant surge in remittances coming through these banks has been observed in the last two weeks.

People associated with the banking sector say that the price of the dollar is moving towards the market price.

However, according to these banking sources, in the future, they will maintain a higher price for the dollar even in the payment of import bills.

Sources informed Prothom Alo that the banks are holding onto these dollars for the future, as the official price of the dollar in imports is still Tk 110.5. 

Banks are regularly informing the central bank that remittance is being purchased at high prices, according to the sources at the central bank.

Furthermore, various foreign remittance and exchange house sources have verified the acquisition of remittance at prices higher than the announced rates.

Officials from the treasury and remittance departments of at least six banks confirmed Prothom Alo that they are purchasing remittances at elevated prices. However, they have opted to keep their names undisclosed. 

Following the advice of the Bangladesh Bank, the Association of Bankers Bangladesh (ABB), an organization comprising top bank executives, and the Bangladesh Foreign Exchange Dealers Association (BFEDA), an organisation of banks involved in foreign exchange transactions, have been determining the dollar price at various intervals.

However, this decision has been partially reversed recently. Due to the informal actions of the central bank, the value of the dollar is gradually becoming market-oriented.

The revised decision by the two institutions sets the price of the dollar for remittance and export earnings at Tk 110, and for payment of import bills at Tk 110.5.

Former Bangladesh Bank governor Salehuddin Ahmed told Prothom Alo that it is very concerning if banks following the advice of Bangladesh Bank purchase remittance at a higher price than what was announced.

The central bank cannot make any such decision informally. If there are concerns about the value of the dollar, it can introduce a margin method without entirely relying on the market. This would help prevent a sudden surge in the price of the dollar. If not, the price may rise significantly, impacting food product prices. Inflation will increase further. 

Salehuddin Ahmed also stated that Bangladesh Bank has not effectively managed the dollar market. This crisis could have been avoided if prices had been based on market conditions in a timely manner. 

The lowest remittance in the last 41 months was recorded in the previous month. In September, the amount of remittance in the country through legal channels was US $1.34 billion. Prior to this, the last time remittance in the country was this low in April 2020 when it amounted to $1.09 billion. The dollar crisis has intensified with the decrease in remittance during this period.

In this situation, almost all experts agree that it is not possible to increase remittance by fixing the price of the dollar, as many expatriates are sending their income through illegal channels due to the higher prices offered. It is known that Bangladesh Bank has advised some banks to buy dollars at a higher price than announced to tackle the dollar crisis after remittance hit its lowest. As a result, in the first two weeks of this month, the inflow of remittance has increased significantly.

Afzal Karim, Chairman of BAFEDA and Managing Director of Sonali Bank, told Prothom Alo, "There has been no change in our decision. The dollar price of remittance is still Tk 110. If someone buys at a higher price, Bangladesh Bank is supposed to look into it.”

According to multiple bank sources, at the beginning of this month, the central bank informally informed top officials of various banks that more remittance should be acquired at any cost. Following this, some banks acquired remittance at the price of Tk 115-116. Subsequently, the central bank mentioned that a maximum of extra Tk 2.5 per dollar can be provided. As a result, about a dozen banks are now purchasing remittance at that price.

The Chairman of ABB and Managing Director of BRAC Bank, Salim RF Hossain, informed Prothom Alo, "We have not received any verbal instructions to increase the price of the dollar. Dollars are being bought and sold at pre-determined prices."

However, according to sources from various banks, Bangladesh Bank has informally instructed all banks -- especially those through which a significant amount of remittance was already coming into the country -- to buy dollars at a higher rate. However, later, due to the fixed pricing of the dollar and insistence on accepting it, the remittance coming through these banks decreased. Some of these banks are Shariah-based as well as conventional banks. Previously, Bangladesh Bank fined 10 bank officials for purchasing dollars at high prices.

According to data from the Bangladesh Bank, in the first 13 days of this month, remittance has amounted to $781.2 million. In the first 11 days of October last year, remittance stood at $615 million. If this trend continues throughout the month, it may exceed $1.8 billion by the end of the month.

It has been observed that banks following the informal advice of the central bank and bringing in remittance have experienced a sudden increase in their income. Al-Arafah Islami Bank received $40.4 million in the entire month of September, whereas it received $48.2 million in the first 13 days of this month. Similarly, Pubali Bank recorded an income of $44.7 million in September, but in the first 13 days of this month, the amount reached $52.6 million. Thus, the remittance for several banks has increased abnormally.

The officials of these banks stated that remittance had to be purchased at a higher price from the remittance houses, resulting in increased income. Dollars are not available at fixed prices. With the commencement of buying at higher prices, the fixed price will no longer be effective.

Regarding the unofficial advice of the Bangladesh Bank, Mezbaul Haque, Executive Director and Spokesperson of the central bank, told Prothom Alo, "I am not aware of any such instructions." 

However, a high-ranking official from a bank that received advice from the central bank informed Prothom Alo, "Remittance is indeed being bought at a higher price based on the Bangladesh Bank's advices. However, the selling price of the dollar to importers has not been determined yet. Consequently, we are in a state of uncertainty. Purchasing a dollar at Tk 115 and selling it at Tk 110.5 will result in significant losses. Therefore, the banks are awaiting a decision from the central bank."

*This report, originally appeared in Prothom Alo print edition, has been rewritten in English by Farjana Liakat