COVID-19 fallout: Govt mulls printing banknotes to salvage economy

In an effort to soften the economic impact of COVID-19, the government is planning to increase the amount of cash currently circulating in the economy by printing more banknotes.

Finance Minister AHM Mostafa Kamal said: “We will surely print paper money to increase money circulation in the market.”

“As per the directives of Prime Minister Sheikh Hasina, the Bangladesh Bank is now preparing a matrix as to how much money is needed to revive and buoy up this sluggish market,” the minister told The Business Post over the phone last week.

The freshly printed paper money will be supplied in a manner so that inflation rate stays at a moderate level, he added.

Increasing cash supply will be one of the strategies that Sheikh Hasina hinted in her speech in the first week of April.

The paper currency supply is meant for execution of different bailout programmes taken by the government to mitigate economic losses and to buoy up it against the backdrop of deadly coronavirus outbreak.

The bailout programmes include increase in working capital for the large industries to the tune of Tk30,000 crore and small and medium industries Tk20,000 crore.

The central bank sources said there are a total of Tk11 lakh crore bank notes of various denominations in the money market now.

As per a Bangladesh Bank norm, it can print banknotes 2.5 times against a dollar. The economy fetches dollars and other foreign currencies through export receipts and remittances sent by Bangladeshi expatriates.

Dr AB Mirza Azizul Islam, former finance adviser to a caretaker government, said printing banknotes to meet financial deficit of the national budget is the country's last resort.

"Printing notes can make a hyperinflation in the economy," he said.

He also said it would be better for the economy if the global lenders give loan or grants to Bangladesh.

Last month, finance minister sought $10 billion in total from the World Bank and the International Monetary Fund to overcome the economic shocks caused by coronavirus pandemic.

On April 01, Indian-born Nobel Laureate economist Abhijit Banerjee also said India must print more currency notes and transfer the cash directly to the sections of society that need it most.

As the supply of money increases, it generally suppresses interest rates. A lower cost of fund, in turn, generates more investment and puts more money in the hands of consumers.

This process thereby stimulates spending. Ultimately, businesses respond by ordering more raw materials and increasing production, according to a theory of economics.