The volume of foreign currencies held by the country’s commercial banks dropped in December 2023 amid a severe dollar crisis.
The gross foreign currency balance with the banks dropped to $5,559 million in December from $5,970 million in November.
The gross balance in December 2022 was $4,795 million.
The balance included nostro accounts and investments in offshore banking units.
The banks’ struggle with the dollar crisis has led to difficulties in settling many letter of credit payments.
The crisis intensified as remittance and export earnings slowed while inflow of foreign direct investment dropped.
Export earnings in July-December of the financial year 2023-24 increased by 0.48 per cent to $27.56 billion compared with those of $27.31 billion in the same period of FY23
In July to December period of FY24, remittance inflow reached $10.79 billion compared with that of $10.49 billion in the same period in FY23.
Since April 2022, the government and the Bangladesh Bank have implemented various measures to curb import surges, including restrictions on luxury items and non-essential products.
These measures have resulted in a 20.94 per cent decline in imports in July-November of FY24 compared with that in the same period of the previous financial year.
The Bangladesh Bank has intensified monitoring of imports to prevent sudden outflows of foreign currencies.
Additionally, the central bank has been selling dollars to commercial banks, with more than $28 billion sold over the past 30 months.
This included $6.7 billion allocated to banks in July-December of FY24, $13.5 billion in FY23 and $7.62 billion in FY22.
The dollar sales had unintended consequence of reducing the foreign exchange reserves of the BB, while also mopping up the local currency, which created another problem — a liquidity crisis in the banking sector.
Bankers said that the dollar holding by banks was not substantial enough to alleviate the ongoing dollar crisis on the financial market.
As there is a shortage of dollars, many import payments were delayed or renegotiated, giving banks more time to acquire the necessary foreign currencies.
Only a small number of banks hold a significant portion of the dollar reserves in Bangladesh, with many other banks experiencing a deficit in their dollar reserves.
As a result, the foreign currency reserves, according to International Monetary Fund guidelines, dropped to $20 billion on January 18, leading to a sharp rise in the exchange rate to Tk 110 from Tk 91 against the US dollar within a year.