In a bid to encourage expatriates to send remittances through formal channels, banks in Bangladesh are set to provide an additional 2.5 percent incentive, effectively raising the exchange rate to a little over 116 Bangladeshi taka for every US dollar.
Incentive:
Previously, the government offered a 2.5 percent incentive, and now, banks will match that amount, creating a total 5 percent incentive for remittances sent through official channels.
Financial Impact:
Currently, 1 US dollar is equivalent to approximately 113 taka and 26 paise. With this new decision, expatriates will receive a more attractive rate of exchange, exceeding 116 takas for each dollar.
Implementation Date:
This decision will take effect from the upcoming Sunday, marking a significant move in supporting expatriate income.
Joint Decision:
The decision to boost incentives was reached through a virtual discussion between the Association of Bankers Bangladesh (ABB) and the Bangladesh Foreign Exchange Authorized Dealers Association (BAFEDA).
Market Dynamics:
The move aims to address the ongoing dollar crisis and make it more appealing for expatriates to use formal remittance channels. Banks have been purchasing expatriate income at rates slightly higher than those set by BAFEDA and ABB, pushing the dollar price to 115-116 taka.
Economic Background:
The country’s foreign exchange reserves have faced fluctuations, with a decrease of about $110 million in the past week alone. Bangladesh Bank recently held a virtual discussion with ABB and Bafeda to strategize regarding the dollar market.
As the balance in transactions returns to normal and the import-export gap lessens, ABB and BAFEDA will closely monitor the dollar market and provide updates to the central bank within the next few days.
Incentive History:
In the fiscal year 2019-20, the government introduced a 2 percent cash incentive on remittances, which significantly boosted the amount of expatriate income sent through formal channels. In the 2020-21 fiscal year, remittances reached $24.80 billion, marking a 36 percent increase compared to the previous fiscal year.
Foreign Exchange Reserves:
According to the International Monetary Fund (IMF) accounting system, foreign exchange reserves recently stood at $2.096 billion. Bangladesh Bank’s accounting system indicated that in August 2021, foreign currency reserves exceeded $48 billion. However, by October 18 of the same year, this reserve had fallen to $26.11 billion, and it has now dwindled to $2.668 billion.
Additionally, there exists another account of net or actual reserves held by the central bank, shared exclusively with the IMF but not disclosed to the public. This account reveals that the country’s actual reserves are currently below $17 billion.
