Dollar market unstable for immature decisions by bankers: Cenbank governor

The dollar market has become unstable due to immature decisions by a few bankers, said Bangladesh Bank Governor Ahsan H Mansur yesterday when the remittance rate reached a new all-time high of Tk127.70.

"They [banks] have no need to collect remittance dollars at such a high price. We are monitoring the market and irregular transactions. We will stabilise the forex market soon," he told The Business Standard. 

The dollar rate for remittances rose by nearly Tk1 in a day, surpassing Wednesday's record of Tk127, driven by increased demand due to the interim government's decisions to clear overdue foreign payments and tactics by aggregator exchange houses.

"We've largely left the dollar rate to the market, but recent transactions by some banks show they lack understanding of how to trade. One bank bought remittance dollars for Tk123 and then for Tk127 on the same day – such a Tk4-5 difference is unreasonable. A difference of 20-25 paisa is acceptable, but not this. If someone requested Tk127, I would not agree to it," the governor said.

He said banks justify the higher price by claiming the need to open government import Letters of Credit (LCs), but this could have been handled differently, such as transferring to another bank. There's no need to destabilise the market for this.

"Some immature traders, particularly in state-owned banks, are abusing the opportunity," said the governor. "One state-owned bank became the top remittance earner in December by simply offering a higher price. Any bank could do this. However, this isn't market activity. These incidents are being closely monitored, and we're addressing them."

He said there's no shortage of supply or excessive demand in the market. Banks buying dollars from exporters at Tk118-119 and from remitters at Tk127 is unethical. 

"You can't offer different prices for different sellers. Unqualified traders should be banned from the market. I can't fix the market with uneducated players," warned Mansur. 

When asked how the dollar market can be stabilised, the governor said traders need to be educated. Banks without experienced dealers should trade cautiously, and those responsible for destabilising the market must be punished. 

"Bank authorities should closely monitor these activities. Banks are also suffering losses by buying dollars at high prices. Our plan is to move toward a free-floating market," he added.

"We do not want to control the dollar market by controlling the banks as we did before," Mansur said. "We do not want to call banks and set the dollar rate like we used to. However, banks must operate within a set of rules and regulations. There cannot be a Tk5-7 difference in the same market."

Senior officials from several banks said they had to pay Tk127.50-127.70 to collect remittances on Thursday, marking the highest dollar-taka exchange rate in Bangladesh's history. On Wednesday, banks paid Tk126.50-127 for remittance collection.

In November 2023, the remittance dollar rate peaked at Tk126, which was previously the highest rate. Since then, the rate fluctuated but remained relatively stable. 

A deputy managing director from a private bank said in early November, the remittance dollar rate was Tk121.80, and by the last week of the month, it had risen to Tk122.50.

The dollar price for remittances has surged sharply since December began, increasing by Tk5 or 4.25% in just 14 working days. This rapid appreciation is considered unusual. 

While the demand for dollars has slightly increased, it is not enough to justify such a price hike, according to industry insiders.

Several managing directors of leading private banks cited reasons for the sharp increase, including a slight rise in demand, the dominance of aggregator exchange houses in setting the dollar price, the central bank's decision to halt dollar sales from reserves since the interim government took office in August, and the entry of state-owned banks as new competitors in collecting remittances.

A dollar market aggregator is a financial intermediary that connects buyers and sellers of dollars. They often aggregate liquidity from multiple sources to provide competitive exchange rates to their clients. Well-known examples include Western Union, Xoom, Remitly, MoneyGram, and CurrencyFair.

A deputy managing director of a private bank explained, "Aggregators often commit to a fixed rate in the morning but later retract, citing higher offers from other banks. This disrupts our payment schedules."