remittance dollar price increase

For several months, the value of the remittance dollar (expatriate income) in Bangladesh had remained stable at 121-122 BDT. However, over the past one to one-and-a-half weeks, it has surged dramatically to 127-128 BDT. This trend is concerning, as it could derail the Bangladesh Bank’s efforts to control inflation.

Exchange houses have attributed this sudden increase to growing demand for dollars. However, such a spike in the remittance dollar market may indicate a resurgence in capital flight from the country. Therefore, I urge the Governor of the Bangladesh Bank to intensify monitoring of capital flight activities. Over the past decade, under the direct negligence of the former authoritarian regime of Sheikh Hasina, capital flight had emerged as the country’s top economic challenge.

According to research by the interim government’s White Paper Committee, an estimated $234 billion was looted and transferred abroad during Hasina’s 15-and-a-half-year rule. The banking and financial sector bore the brunt, followed by the energy and power sector, infrastructure development, and the IT sector.

The White Paper outlines detailed data on sector-wise looting and provides estimates of the stolen amounts. It identifies 28 corruption methods employed to facilitate the looting process. The major destinations for these illicit funds include the UAE, Canada, the USA, the UK, Singapore, Malaysia, Hong Kong, India, and several tax havens.

The primary beneficiaries of this plundering system include oligarchic businesses, financial sector operatives, corrupt bureaucrats, contractors, intermediaries, and relatives of Sheikh Hasina, all supported by complicit politicians. They have compromised various national institutions, including the executive branch, civil administration, judiciary, revenue collection, and investment regulatory agencies, to ensure mutual benefits. This has weakened domestic investment and revenue collection, eroded foreign currency reserves, and destabilized macroeconomic management and governance.

After the fall of Hasina’s regime, most of these looters and capital smugglers, except a few, have fled the country, with many escaping to India via secret routes by paying hefty bribes. Over time, many of them are likely to face temporary financial difficulties abroad, creating a need for increased foreign currency supply to sustain their stay. This could explain the sudden spike in demand in the remittance dollar market.

The collapse of the hundi (informal money transfer) network post-Hasina’s regime is evident from the recent surge in remittances through legal channels since August. This indicates that capital flight via the hundi network had subsided significantly.

However, the recent sharp rise in remittance dollar rates indicates that the business of exchange houses is picking up again. The excessive enthusiasm shown by commercial banks to buy remittance dollars in recent days is unlikely to be solely linked to their LC (letter of credit) payments. Therefore, stricter intervention by the Bangladesh Bank is essential.

The Bangladesh Bank has already issued a directive capping the maximum price for remittance dollars at 123 BDT. From January 1, 2025, a uniform rate will apply to both remittance dollars and export earnings, with penalties for non-compliance. Additionally, the central bank has decided to abandon the “crawling peg” policy for foreign exchange rates and will determine the dollar’s base price twice daily, allowing the market to dictate fluctuations. This will be effective from January 12. However, this approach may prove counterproductive.

Allowing the market to dictate exchange rates entirely could lead to unintended consequences, as the country’s forex market could quickly fall prey to organized hundi syndicates. Furthermore, politicians and businesspersons exiled abroad may engage in large-scale subversive activities to revive demand for illegal capital transfers.

To deter such practices, more stringent measures are required, including imposing fines, revoking licenses, and arresting responsible officials of non-compliant exchange houses and banks. It must be noted that the economy has avoided a meltdown in the months following the public uprising due to the surge in legal remittances, export growth, and stabilized import costs.

A group of businessmen appears to be attempting to disrupt these positive trends. Therefore, the ongoing vigilance by the Bangladesh Bank must not wane. While the reserves are recovering, maintaining stability in the exchange rate is crucial to controlling inflation, especially ahead of Ramadan.

The interim government must prioritize strengthening export growth, encouraging remittances through legal channels, challenging the dominance of hundi operators in the dollar market, and maintaining tight control over imports in the coming year.

— **Dr. Moinul Islam**
Economist and former Professor, Department of Economics, University of Chittagong