Covid fallout: Dollar crisis deepens

The crisis of dollars has largely been intensified in Bangladesh’s foreign exchange market because of the worldwide Coronavirus pandemic. The local industries are being forced to pay more taka (local currency) when buying dollars to import their raw materials and various machinery.  

Over the last 2 weeks, the price of a dollar went up by Tk 1.50 to Tk 2. The commercial banks said the supplies of dollars have declined but the demand has increased substantially, resulting in the US dollars becoming dearer. The central bank should supply more dollars to satisfy the current demands, the commercial banks said.

After talking to large industrial conglomerates and importers, the Business Post learned that consignments for which Letters of Credits (LCs) had been opened have reached the country. Therefore, the bills against those consignments have also landed on the respective banks for settlement. The LC bills have to be paid in dollar terms at a specific exchange rate that was negotiated earlier. An importer makes the payment with local currency but the bank pays its foreign client in dollar denominations. The exchange rate of a dollar was previously set at Tk 84.95 to Tk 85. But, in the last two weeks, the banks are charging Tk 86.50 to Tk 87 for a dollar. This means the value of the dollar has gone up by Tk 1.50 to Tk 2 in just two weeks. Large industrialists who had opened LC’s worth $ 5 million are now paying an extra 7 million to 8 million taka. The companies would not be able to earn much of profits by selling their recently imported products.  

Industrialists are now arguing that they should be entitled to some benefits--- as were given to loan defaulters of the country--- during this disastrous period. They suggest that the price of a dollar be kept at Tk 85 taka for the next two months. If the banks require dollars to comply with the recommendation, the central bank should step in to broaden the supply of the foreign currency to appease the demand. Such actions, industrialists said, will help the local industries to mitigate their losses.

The secretary general of the pinnacle organization of the commercial banks, namely, Association of Bankers', Bangladesh, and concurrently the managing director of Prime Bank, Rahel Ahmed, came up with some suggestions.

He explains that the dollar sources of the local banks are comprised of export receipts, remittances and borrowing from other banks. But, due to the Coronavirus pandemic, export earnings and remittances have nosedived, resulting in an acute shortage of dollars in the forex market. Commercial banks have inadequate dollars at their disposal and, therefore, cannot sell to other banks. The demand for dollars is rising while the supply is not. Therefore, the price of the currency is escalating. The central bank should supply more greenbacks as per the market demand in the interest of Bangladesh's industries. There is no option except to take initiatives to increase the supply of dollars in the market.

Bangladesh Bank, executive director and also its spokesman, Md. Serajul Islam said the bank is creating a fund to resolve the current crisis. If the importers need dollars, commercial banks should approach the central bank, explaining their needs, and Bangladesh Bank must take necessary action.

Those who supervise exchange rates of foreign currencies in the central bank and control their trading said, some banks are showing up to get US dollars but the central bank is catering a little. This will not meet their needs.

The much-needed decision to enhance the supply of dollars in the market depends on some top officials of the central bank. Some assume that a decision might be made in the next week, but what decision will be taken is not clear as yet.

Stakeholders of foreign currency trading said in the first week following the general holiday, 26 banks could not settle their dues. They had bought some time to comply. Later, some of the banks had communicated with the central bank to buy dollars for trade settlements. As the first phase of the general holiday was over, the central bank, in two installments, sold some amount of dollars to the commercial banks.  On the first day, BB's sale stood at $15 million while it jumped to $42 million, on Monday.

The central bank sold a total of 620.20 million worth of dollars from 1st July of 2019 to April 16, 2020. It, however, purchased $300.50 million worth of dollars during this period. Interestingly, the purchases made by the BB did take place in March.

The central bank’s officials concerned have admitted the dollar crunch in the market. They said export receipts and remittances sent by the Bangladeshi expatriates have gone down and, therefore, the demand for the dollar has gone up. They said the liabilities of the LCs could not be settled with the dollars the commercial banks are having in their vaults.

As per the statistics gathered by the Export Promotion Bureau, Bangladesh's export earnings declined by 4.80% in the first 8 months, or between July to February. In the meantime, Bangladesh Bank has published the nation's import bills for the first seven months that reveals that import expenditures have declined by 4.40% between July-January.

The central bank has also published data on the incoming remittances for the first nine months (July-March). Remittance from overseas workers increased by about 16.1 5%, but it is 13.30% lower than the corresponding period of the earlier fiscal year. The inflow of the remittance this April would come down to 50 percent, BB officials said.