Illegal price fixing of foreign currency

In South Africa, some local and overseas banks secretly decided to fix the rate of Rand/US$. Rand is the South African currency. The Competition Commission of South Africa came to know about fixing the currency exchange agreement and initiated an investigation.

In May 2015, the Competition Commission’s investigation involved Citigroup, Nomura, Standard Bank, Investec, JP Mor-gan, BNP Paribas, Credit Suisse Group, Commerzbank AG, Standard New York Securities Inc., Macquarie Bank, Bank of America Merrill Lynch (BAML), ANZ Banking Group Ltd, Standard Chartered Plc and Barclays Africa (Absa), part of the Bar-clays Plc.

On 15 February 2017, the Commission alleged that from at least 2007 the banks agreed to collude with each other on pric-es for bids, offers and bid-offer spreads for spot trades in relation to currency trading involving the dollar and rand currency pairing. Following its investigation, the Commission found that the banks directly and indirectly manipulated trade of the USD/Rand currency pair in relation to Bids, Offers, Bid-offer spreads, the Spot Exchange Rate and the terms and/or margin of executing client orders at the FIX. The Commission has fined maximum 10 percent of the respondent banks’ South Afri-can revenues.

Moreover, from 1 May 2016, the commission announced that price fixing (both buying and selling prices), market division and tender collusion between competitors became criminal offences in terms of section 73A(1) to (4) of the Competition Act, 2009). The South African Competition Act also prohibits direct or indirect price-fixing between competitors. It also prohibits information exchange between competitors which gives rise to anticompetitive conduct.

Situation in Bangladesh

There are about 10 million expatriates working in Middle Eastern countries. They are major source of foreign currency for the nations. There are some exchange houses in those countries that collect foreign exchange from expatriates and send to Bangladesh. According to Bangladesh Foreign Exchange Dealers Association (BAFEDA), these houses in other countries are making more profit than usual due to the lack of a uniform exchange rate in case of bringing remittance dollars. BAFEDA have information that currently 90 per cent of remittances come into the country through domestic and foreign exchange houses, which set the rate for selling remittance dollars to the banks.

BAFEDA decided to set a dollar rate on behalf of the country’s banks to collect dollars from the exchange houses at a rea-sonable price, which they term “One Country One Exchange Rate”. If the rate is implemented, all the banks will buy dollars from the exchange houses at a “fixed price”. As a result, “competition among banks will decrease” and the dollar market will stabilize.

A source present at the meeting said the bank officials at the meeting signed a letter of consent to accept these decisions. In view of this decision, BAFEDA has given a letter to hold a meeting with the Bangladesh Bank and BAFEDA and Bankers association had a meeting on 7th September with Bangladesh Bank Governor. The governor has tasked the ABB and BAFEDA to set the dollar exchange rate. On the other hand, Bangladesh Bank on September 8, 2022 claimed that it would allow the market, meaning demand and supply, to fix the exchange rate of the US dollar against the local taka.

As the demand for dollars has increased due to the ongoing crisis and the area of dollar collection has become limited, the banks’ interest in collecting dollars has increased. Competition among themselves has also increased. Utilizing the oppor-tunity, the exchange houses are setting the dollar price much higher than normal for their convenience. Consequently, the banks are also selling the dollar at a high price.

BAFEDA wants to execute the “One Country One Exchange Rate” policy for bringing remittance through exchange houses. BAFEDA has recently sent a letter to the Bangladesh Bank, requesting to hold a meeting on 24 August 2022 and take a deci-sion in this regard. They have decided to determine a single exchange rate for the dollar for all banks to bring remittances, taking into account the current exchange rate in the market, and the banks will comply with it. The decisions were made during a meeting between the Bangladesh Foreign Exchange Dealers Association (BAFEDA) and the Association of Bankers fixing the currency exchange rate for quite some years and they used to issue press release to inform all stakeholders about their decisions.

In a recent meeting, BAFEDA decided to reduce the existing fixed rate of US$. Bangladesh’s remittance inflow – which is already showing a steady decline – could continue on this downward Rand in the coming months as banks have decided to lower the USD rate in foreign exchange houses from November 1, economists say. There is no dearth of evidence of fixa-tion of price of currency by trade association. A source present at the meeting said the bank officials at the meeting signed a letter of consent to accept these decisions.

The Competition Commission Act 2012 under section 3 and 4, the commission has been given jurisdiction on most of the economic activities except involving national security issues and goods and services not open for private sector. Banking sector is open for private sector. The fixation of currency exchange rate is prohibited under the BCC Act and commission may take action against the association for fixing the exchange of dollar.

The banks in South Africa decided in a secret meeting but the BAFEDA has decided in the open meeting with the consent from the governor of Bangladesh Bank and issued press release to the stakeholders.

The acts of BAFEDA and Bankers association is illegal and the decision encouraging the expatriates to use HUNDI channel to get a fair price of their hard earned foreign currency. But Bangladesh authorities have allowed Banks to make profit keeping the price below the price to determine by the market mechanism. Unfortunately, the legal experts and economists of the country remained silent except a few about consequence of fixed currency exchange. IMF and World Bank also re-peatedly requesting to floating rate of currency to bring optimum amount of foreign currency through Banking channel.

Bangladesh Competition Commission may take the issue with the stakeholders to stop manipulating the exchange rate and increase inflow of the foreign currency in this crisis period of the nation. BCC has shortage of manpower and other infra-structures to investigate case market manipulation but in this case the evidences are available with Bangladesh and other others. The decision of BAFEDA to set a dollar rate on behalf of the country’s banks to collect dollars from the exchange houses at a fixed price, which they term “One Country One Exchange Rate”. All the banks will buy dollars from the ex-change houses at a “fixed price”. According to them this collusive agreement will reduce “competition among banks will decrease” and the dollar market will reportedly stabilize. This action is illegal and has bad impact on our currency market.

The writer is Non-Government Adviser, Bangladesh Competition Commission. He can be contacted at mssid-diqui2035@gmail.com