Cash dollar holdings swell in Bangladeshi banks

Cash dollar holdings in banks have been steadily increasing, buoyed by initiatives such as allowing Bangladeshis to open and maintain foreign currency accounts and the enactment of offshore banking laws to encourage non-resident Bangladeshis and foreigners to deposit their dollars in exchange for favourable returns. 

According to Bangladesh Bank data as of 24 March, cash dollar holdings in banks have risen to $39.39 million, up from $32 million in February and $28 million in January. 

Finance Minister Abul Hassan Mahmood Ali, speaking at a programme on Sunday, expressed satisfaction with the response from foreign depositors and investors following the recent passage of offshore banking laws. 

"We anticipate a surge in foreign currency inflows soon," he said while addressing a seminar in Dhaka yesterday. The Bangladesh Institute of Development Research (BIDS) organised the seminar titled "Unpacking the Economic Manifesto of the Awami League: Trends and Challenges for Tomorrow Bangladesh" at BIDS office. 

Banks are now offering up to 7% interest on dollars deposited as RFCDs (Resident Foreign Currency Deposit Account) by customers, bankers said. Besides, these dollars are being spent both domestically and internationally without much consideration. 

Also, many banks are enticing customers by offering to deposit $10,000 in cash into their accounts each time they travel abroad. As a result, banks are witnessing an increase in their cash dollar reserves. 

Currently, most of the cash dollars are held by banks such as Eastern, City, BRAC, Dutch-Bangla, Prime, Pubali, Standard Chartered, HSBC, and Islami. Apart from US Dollars, RFCD accounts also accept deposits in Pounds, Euros, Australian Dollars, Canadian Dollars, and Singapore Dollars. 

The head of the treasury department at a private bank explained that the bank's cash dollar reserves might be rising due to the popularity of RFCD accounts. 

Customers can now deposit up to $10,000 after travelling abroad without any hassle, making it a profitable option, said the bank official. 

Furthermore, there's little difference between the exchange rates offered by banks and those in the curb market, he said. 

Banks offer around Tk114-Tk115 per dollar, while the curb market rates stand at Tk117-Tk118. Therefore, individuals are opting to keep their cash dollars in banks rather than selling them, he further said.

"However, it remains uncertain how sustainable this influx of dollars into banks will be, as many individuals may need the funds for various purposes such as travelling abroad, medical treatment, or education," added the treasury head. 

Bangladesh Bank issued a notification on 3 December last year, offering additional benefits, including interest, on RFCD accounts to encourage the return of dollars held domestically to the banking system.

Following this, some banks began opening RFCD accounts with additional incentives. 

Who can open RFCD account 

Any Bangladeshi citizen above 18 years of age who has returned from abroad can open an RFCD account. The timing of their overseas trip is not the main concern. The key requirement is to submit the passport and visa documents showing their travel abroad to the bank. 

Additionally, two copies of photographs, nominee details, National Identity Card, and Tax Identification Number are needed for account opening. 

Banks issue debit cards to customers without providing a chequebook, eliminating the need for authorization for spending. 

A citizen can deposit up to $10,000 as RFCD for each trip abroad. Therefore, if someone has travelled abroad 10 times in the past year, they can deposit up to $1,00,000 in their name without any documentation. 

However, if they wish to deposit more dollars per trip, they will need to submit a customs declaration to bring additional dollars into the country. 

According to the new guidelines from the central bank, banks are now offering interest of up to 7% on these deposits. Following the directives of the Bangladesh Bank, banks will provide at least 1.5% interest above the benchmark rate on deposits in this account. 

The Secured Overnight Financing Rate (SOFR) is currently 5.31%. Accordingly, the interest rate on RFCD deposits stands at 6.81%. 

What finance minister says 

At the programme, Finance Minister Abul Hassan Mahmood Ali said that after the enactment of the offshore banking law, foreign savers and investors are showing interest. 

"The government has already communicated with various stakeholders. Investors are expressing their liking to the law. As a result, savings from abroad will increase rapidly, leading to an influx of foreign currency into the country," he added. 

After getting final approval from the cabinet on 28 February, the Offshore Banking Act 2024 was passed in Parliament on 5 March. According to this law, the government will not charge any tax on the profits that foreigners make in the offshore banking units of Bangladeshi banks. The law also gives several facilities to the depositors such as withdrawing their deposits whenever they want. 

The finance minister said "At one point we faced some problems. People raised questions about the country's foreign reserves. Some said Bangladesh will face the same problems as Sri Lanka. But that didn't happen. Foreign currency has started coming in." 

He said offshore banking existed in the country before. "But there was no law. Law is needed for trust and security. That is why the government made the law."

The minister noted that countries like Japan, South Korea, Saudi Arabia, and the United Arab Emirates are keen on investing. "This means there won't be a shortage of foreign currency. Bangladesh is advancing to the next stage."