Guidelines for taka-dollar swap: Who will benefit?

Bangladesh has been grappling with an acute dollar crisis for the last two years.

Although the authorities managed to cut the import expenses to a significant extent, it failed to stop the forex reserves from decreasing by nearly a half.

The Bangladesh Bank continuously offloaded dollars from its reserves to meet market demands. But some banks encountered a liquidity crunch while purchasing dollars.

Against such a backdrop, the banking sector regulator has announced the launch of a taka-dollar swap system for the commercial banks, following a proposal by Prime Bank.

However, it remains a big question how the system will work. It was learnt that the central bank is working to formulate a guideline regarding the system and it may come into effect anytime soon.

Mejbaul Haque, spokesperson and executive director of the Bangladesh Bank, said, “The work is underway to formulate a policy regarding the usage of the dollar-taka swap system. We hope to be able to launch the system soon. The banks are seeking the guideline and we are doing it accordingly.”

The proposed swap system mirrors practices in many countries across the world where the banks can collect local currency by depositing dollars with the central bank.

The Bangladesh Bank is now working to introduce the system here, enabling the commercial banks to deposit their surplus dollars and collect local currency in return. They can retrieve it later as per their need.

However, experts believe that the system will merely meet the urgent need, but the overall supply of taka and dollars will not rise.

It was learnt through conversations with the central bank officials that the banks will have to pay a higher amount to the central bank than the figure they received by depositing dollars, as the interest rate on taka remains higher than that of dollars.

It means the banks may have to repay the withdrawn funds with interest ranging from 5 to 6 per cent, while the amount of dollars will remain the same.

The Bangladesh Bank has canceled transfer of funds from the general banking channels to the offshore units and asked the banks to bring back the already transferred funds within the current year.

Against such a backdrop, the banks now cannot use the dollars they borrowed from different foreign banks. The new system would facilitate a passage for them to deposit the dollars with the central bank and collect local currency in return. They will be able to disburse loans with the money, while the central bank will strengthen its forex reserve. It is like a win-win situation for both sides.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said if the taka-dollar swap system is introduced, the export earnings that entered the country but the clients do not want to encash, can be used. It will strengthen the forex reserve in the central bank and benefit all.

In the prevailing system, it is possible to sell the surplus dollars to the central bank or other banks, but there is no guarantee of their repurchase. The swap system guarantees the return of dollars within the agreed time frame.