Pandemic pushes up currency outside banks

Currency outside banks rose 12.32 per cent at the end of November last year to Tk 2,08,296.4 crore, boosted by people’s tendency to keep cash in hand during the pandemic, a trend bankers said was worrying.

Bangladesh Bank data show that currency outside banks stood at Tk 1,85,436.90 crore in November 2020. Commercial banks said the situation was also affecting their deposit growth.

Central bank officials said currency outside banks was high when the country was under strict restrictions to contain the coronavirus outbreak but it is still increasing due to the uncertain situation created by the new virus variant. 

They said that the increased cash in hands limit money circulation in the banking sector. The amount was Tk 1,58,917.6 crore in January 2020, two months before the virus outbreak in the country. But it gradually increased to Tk 2,10,983.8 crore after the government imposed strict restrictions to contain coronavirus infection.

In January last year, the amount dropped to Tk1,85,741.9 crore before rebounding to Tk 2,27,042.9 crore in July when the country was under strict virus restriction, BB data show. 

“Cash outside the banking channel usually rises when excess liquidity in the banks increases,” said Md Habibur Rahman, chief economist of Bangladesh Bank. “The sale of US dollar apparently could not wipe excess liquidity from the banking system.”

Commercial bankers said low interest rates on deposits discouraged people from keeping money with banks.

As of December last year, the weighted average interest rate on deposit stood at 3.99 per cent, which was at 4.54 per cent a year ago, BB data show. 

Bangladesh Bank’s former governor Salehuddin Ahmed said the deposit interest cut was a bad move.

“Small depositors lost their interest in making further deposits with banks mainly due to lower interest rates on deposits,” he said.