‘Digital currency can reduce informal economy size’

Bangladesh can reduce the size of its informal economy once it adopts the Central Bank Digital Currency (CBDC), which will ultimately bring about digital and financial inclusion countrywide, said speakers at a programme on Tuesday.

The CBDC is generally defined as a digital liability of a central bank that is widely available to the general public, according to the US Federal Reserve System.

The speakers also sought policy and legal frameworks to digitalise transactions, saying this would help the country achieve the Digital Bangladesh vision.

They made the remarks while addressing the programme titled “Transforming the Paper Currency to Digital: Takings from and Makings of Central Bank Digital Currency” at InterContinental Dhaka.

Organised by Emerging Credit Rating Limited, Scholars Bangladesh, Tier 1 Solutions Limited, and Emerging Resources Limited, the event was attended by former governor of the Bangladesh Bank Atiur Rahman as the chief guest. bKash CEO Kamal Quadir was the special guest while Emerging Credit Rating Chairman Jamaluddin Ahmed presented the keynote.

In his keynote, Jamaluddin said the size of Bangladesh’s informal economy as a percentage of GDP is 32 per cent while it is less in the developed countries as payments and transactions have been digitised.

“Digitisation of transactions can ensure that the informal economy would become more organised. It can prevent money laundering too,” he said.

According to the keynote, Bangladesh lost $50 billion to trade-related illicit money flow in six years between 2009 and 2015. Non-performing loans surged by Tk 31,000 crore to Tk 1,34,396 crore at the end of September 2022 from Tk 1,25,257 crore at the end of June the same year.

A total of 114 countries have adopted or going to adopt the CBDC, said Jamaluddin.

“For Bangladesh, we suggest the formation of a task force comprising professionals from different sectors,” he added.

Atiur said the Bangladesh Bank has taken a number of initiatives to support digital transactions.

“What we should emphasise is interoperability so that mobile financial services (MFS) and banks can transact money without any barriers. The central bank’s Binimoy app should be implemented faster, and transactions will be easy once that is done.”

The central bank should initiate newer innovations but should launch those after successful experiments as hasty decisions can make things risky for the financial sector, he said.

Kamal said four fundamental things are needed for digital transactions.

“Trust is an essential ingredient, which comes with legal and policy frameworks. Then comes proper stacking like accessing the necessary data of customers. The third is robust technology while the final one is governance,” he said.

“The equivalent amount of money being transferred via bKash accounts has to be kept somewhere as directed by the central bank. 25 per cent is kept in government treasury and the remaining 75 per cent in scheduled commercial banks,” Kamal explained.

“It is obviously for protecting customer funds. Fund protection will be ensured by governance. The directives on digital financial services that the central bank issued twelve years ago have created the fundamentals for our services.”