Foreign currency clearing through RTGS from today

The country’s commercial banks will begin to conduct foreign currency clearing activities through the Real-Time Gross Settlement (RTGS) system of Bangladesh Bank (BB) from today (Sunday), opening a new window in the existing payment ecosystem.

At present, banks clear the foreign demand drafts (FDDs) issued in foreign currencies under BB’s foreign currency clearing arrangement.

The clearing and settlement process now is still manual and paper-based. This requires the physical movement of instruments and officials, which leads to higher transaction costs and inconveniences, according to industry insiders.

But now, they said, foreign currency clearing will be easier and more convenient.

Initially, five foreign currencies — US Dollar (USD), Great Britain Pound (GBP), Euro (EUR), Canadian Dollar (CAD) and Japanese Yen (JPY) — will be cleared through the RTGS system.

The clearing and settlement of the Chinese Yuan (CNY) will be incorporated into the RTGS system soon, said senior BB officials.

What is RTGS system?

RTGS is a credit transfer system and its foreign currency (FC) operation is similar to that of the local currency (BDT) settlement system.

At the beginning of each business day, the banks’ specific FC account will be debited and the related RTGS account will be credited as per the Standing Instruction of the participants, according to a recently issued BB notice.

Then, as per the instruction of participants, transactions will be settled instantly and the fund will be transferred to the beneficiary’s account. The transaction will be settled only when the RTGS account of a specific currency has a sufficient balance.

At the end of the business day, the RTGS settlement account’s balance will be transferred to the bank’s specific FC account. Thus, FC clearing through the system will eliminate settlement risk as well as credit risk for the participants, said BB.

BB officials said that Bangladesh’s RTGS system is a standalone one and no other payment platform is connected to it. Banks will have to maintain FC accounts with the central bank to originate and receive the FC transactions in this system.

They added that the system allows only currency-wise transactions and no cross-currency transactions.

Any amount of FC transaction can be settled through the RTGS system but only authorized dealer branches and clearing units at the head offices of the banks will be able to originate and receive such transactions.

Bank can charge a maximum of Tk 100 including VAT or equivalent foreign currency for each transaction from the originator.

Introduced in 2015

To facilitate a safe, secure and efficient interbank payment system, BB launched the RTGS system on October 29, 2015, as part of its inclusive digitization initiative.

RTGS opened a new horizon in the payment ecosystem, accommodating instant settlement of large value and time-sensitive payments in the country. The system is capable of operating both in local currency and foreign currency.

The system is currently allowed to handle lots of lucrative features including VAT Online Payment, Customs Duty, E-Payment and Automated Challan System etc.

Along with these individual inter-bank transactions, there is an option to settle all other Deferred Net Settlement Batches such as BACPS, BEFTN or NPSB through the RTGS system, according to central bank officials.

Till Saturday, the RTGS system was operating only in local currency inside Bangladesh.

More than 11,235 online branches of 60 scheduled commercial banks and 16 Financial institutions are currently connected to this system.

In July this year, Tk 4,34,694 crore were transacted in 6,23,010 transactions that were carried out through the RTGS system, according to the latest BB data.