Bangladesh Bank Governor Abdur Rouf Talukder said new money – one of the reasons behind high inflation – is not created by treasury bills (T-bills) and bonds, instead it is created when the regulator supplies printed money into the economy through balance sheet adjustment.
“This means if the central bank purchases the government bonds, and keeps it for a selective tenure, then it expands the balance sheet, and new money is created,” he added.
The governor made these remarks in response to a comment at a programme titled “First Development Studies International Conference Dhaka,” held at the Pan Pacific Sonargaon in Dhaka on Sunday.
Mohammad Muslim Chowdhury, former secretary at the finance ministry, said, “Every policy is playing a significant role. Currently, the government is taking more money from domestic sources, compared to the foreign ones.
“The government is borrowing from scheduled banks through treasury bills and bonds, though the central bank had stopped injecting the high powered money into the economy. On the other hand, banks are considering investing their money in treasury bills and bonds to secure good profits. But it is helping to create new money.”
The central bank governor later said, “We are going to introduce the Crawling peg method of exchange rate soon, which will work as a market-based exchange rate. We will introduce market based interest rate as well.
“The central bank discourages imports of less essential products. The country has received over $2 billion in remittance in the last five months. I am optimistic that in December this year the financial account will show positive trends.”
He added that the central bank has two key issues and challenges now – to curb the high inflation and reduce forex reserve erosion.”
Salehuddin Ahmed, former governor of the central bank, said, “The ongoing economy is facing a high inflation rate, which is the main concern of the central bank now. The collection of revenue should be increased otherwise the whole economy will face the pressure.
“A contractionary monetary policy creates some problems in the economy. Small Medium Enterprises (SMEs) get affected as banks don’t want to provide the loan to them. So the central bank should take measures where all types of enterprises will get the loan from banks. “
Salehuddin added that the current account balance is negative due to the decreased inflow and the declining forex reserves.
He pointed out, “The International Monetary Fund (IMF) recommended many times to withdraw incentives from fuel and other sectors, but I think all recommendations from the IMF are not good for the economy of Bangladesh. Because we still need subsidies in many sectors.
“The central bank is not out of the sphere of political influence. Every country’s central bank tackles this issue. Even the IMF is not out of political influence.”
