Dollar capped at Tk108 for remitters, Tk99 for exporters

Banks have capped the rates of the dollar at Tk108 for remittance inflows and Tk99 for export proceeds as part of an effort to curb volatility in the country's foreign exchange market.

The Bangladesh Foreign Exchange Dealers Association (Bafeda) and the Association of Bankers, Bangladesh (ABB) fixed the rates at a meeting on Sunday upon instructions from the central bank.

The new rates will take effect on Monday.

The meeting also decided that the rate for import LC (letter of credit) settlement will be fixed by calculating the average remittance and export bill rates with a maximum increase of Tk1.

"We, the ABB and Bafeda, sat in a meeting so that there is no variation in foreign currency exchange rates. There should be no uneven competition in the market. We have made the decision after reviewing the current position of the forex market and exchange rates," said Afzal Karim, chairman of Bafeda and managing director of Sonali Bank.

"From now on, banks will report their average cost daily and Bafeda will recalculate the interbank rate based on the industry average," he added.

Emerging from the meeting, Selim RF Hussain, chairman of ABB and managing director of Brac Bank, said, "The central bank instructed us to determine the exchange rate for the banking sector after reviewing the overall forex market. We have made the decision accordingly."

He said the exchange rates may change from time to time according to international market conditions.

ABB Vice Chairman Mashrur Arefin told TBS, "I am happy with the outcome of the meeting. We worked hard to find out where the market is. These rates will work mainly because they are reflective of the market realities today. And I believe these are fair and just rates for all parties. I also believe, soon we will see an interbank rate emerging."

"ABB and Bafeda will review the situation fortnightly and jointly seek regulator's help in case there is any breach by any bank," he added.

Zahid Hussain, former lead economist of the World Bank's Dhaka office, told TBS, "It would be difficult to enforce uniform rates set by Bafeda as it is a peculiar system. Some banks will have higher remittance inflow, while others will have more export encashment, then the LC settlement rate of the ones whose remittance is more will be higher. Consumers tend to lean towards where they get a lower rate."

He said there is a gap of Tk9 between remittance collection and export bill encashment. As a result, exports are at risk of under-invoicing.

"If exporters do under-invoicing and bring their proceeds as remittance, they will get Tk9 more against each dollar and another Tk2.5 as an incentive. It may create a new way of under-invoicing," he added.

Zahid Hussain said now money laundering will take place through export under-invoicing.

It is not clear how supply and demand balancing will happen, he added.

However, the managing director of a bank, wishing not to be named, said after collecting the remittances and encashing the export proceeds by banks, it will be seen that the LC rate at each bank is different.

However, the LC rate of banks will be between Tk103-105 on average as the decision has been made after examining the entire industry.

He also said the export bill encashment of new generation banks is less so they have to collect fewer remittances. They will collect dollars from inter banks. Interbank rate will then be Tk104. So there is no need to collect remittances at an additional cost.

Every day banks will provide their average cost and Bafeda will determine the average of the entire industry and fix the interbank rate. As a result, there is no chance of under-invoicing.

Whether fixing the uniform rate of remittances will pave the way for hundi, Mustafizur Rahman, distinguished fellow of the Center for Policy Dialogue (CPD), told TBS, "The rates fixed by Bafeda for remittances will act as a big incentive. It has created additional opportunities for expatriate families. However, the central bank's campaign against hundi and dollar manipulation should be continued."

Since the beginning of this year, the dollar has been on the rise as the supply of the greenback has dwindled. However, since March of this year, there has been a severe dollar crisis. However, the central bank took several steps including policy decisions to stabilise the market.