No show cause notice, only punishment for remittance rate violation: BB

Two days after verbally instructing banks to collect remittance dollars at a higher rate, the Bangladesh Bank has now directed them not to pay more than the previously fixed rate and has warned of punishment for violating this directive without issuing a show cause notice.

Top officials from at least four banks told The Business Standard that the central bank called them on Wednesday and instructed them verbally not to pay more than Tk118 for buying remittance dollars.

Another top treasury official at a leading private bank said the Bangladesh Bank has threatened to punish banks without issuing a show cause notice if they offer rates higher than the fixed rate.

Bankers say the central bank cannot issue such verbal instructions according to the existing laws.

Earlier on Sunday, to increase the flow of remittances, the central bank had asked banks to pay higher rates for remittance dollars.

According to central bank data, remittances totalled just $1.58 billion in the first 27 days of July. As a result, the remittance inflow for this month may be below $2 billion.

Remittances were $2.25 billion in May and $2.54 billion in June, after the dollar had appreciated by Tk7 earlier.

Remittance inflows declined over 10 days due to the Student Movement Against Discrimination, a 5-day internet blackout, a three-day bank closure, and a negative campaign among expatriates discouraging the use of banking channels for remittances.

The deputy managing director at a private bank told TBS, “On Wednesday morning, the central bank called and instructed us not to pay more than the fixed rates. They also warned that we would be fined if we paid a higher rate.”

“Following these instructions, we aimed to collect remittances from exchange houses at the prescribed rate. However, we did not receive much remittance at this rate. Yet, just two days ago, we were instructed to collect remittances at an even higher rate to increase the flow,” he added.

Commenting on the recent instability in the dollar market due to the central bank’s repeated policy changes, a policymaking official from another bank said that the Bangladesh Bank does not seem to understand the impact of such frequent interventions.

“The market becomes unstable when banks are repeatedly called and instructed in this manner. We’ve seen in the past that attempts to control the money market through such frequent phone calls can lead to problems,” he expressed concern.

For example, the banker said, remittance inflows dropped in September last year due to similar instructions given over the phone. It seems the central bank has forgotten that experience.

Remittance inflows fell to $1.33 billion in September 2023 due to the central bank’s tightening of the dollar rate. Bangladesh typically receives an average of $2 billion in remittances each month.

However, a Bangladeshi expatriate said on Wednesday that the popular exchange house MoneyGram was offering Tk120.58 per dollar of remittances. Additionally, Western Union was rating the remittance dollar at Tk119.50. For the past three days, companies have been offering rates above Tk119.According to senior officials at several public and private banks, the dollar rate for remittances was as high as Tk118.60 until last Sunday. The rate had remained close to this level for a month. However, it rose to Tk119.50 that day after banks were instructed to buy remittances at a higher price.

The managing director of a leading bank noted that there will be fluctuations in the dollar price, and at least a couple of weeks of observation are needed to determine the direction of the dollar market.

With the increase in the remittance dollar rate, the cash dollar was also sold at Tk124 in the open market on Wednesday. However, some money changer houses are reported to have sold cash dollars for up to Tk125. The Money Changers Association has instructed institutions to sell cash dollars at Tk119.

MS Zaman, president of the Money Changers Association of Bangladesh, told TBS that many unscrupulous businesspeople are trying to take advantage of rising dollar rates.

“For these reasons, we, on behalf of the association, issued a letter to our member money changers,” he added.