Increase In Incentives For Remitters

Falling value of Taka against the dollar Brings more remittances from blue collar. Letting market fix the exchange rate Withers away chances to speculate.

Finance Minister in a press conference stated that govt would give taka 5 for 1 USD sent by the migrant Bangladeshi workers. He almost doubled the incentives for remitters. This is indeed contrary to the contractionary monetary policy the Central Bank is pursuing right now. Earlier he also defended his 9-6(9% on lending rate and 6% on deposit rate) interest rate policy,which was widely criticized for not containing the inflation.

Despite the failure of earlier taka 2.5 /USD cash incentives, many are wondering what it will really add to the economy. What is interesting while Bank and exchange houses are lacking USD,street vendors are offering USD at a higher rate. It seems like a black market for cinema ticket! A certain quarter is making some quick bucks. Profiteering activity is in full swing amid a crisis! Back in September 15 this year,I penned a piece titled “Is MPS Working?”¹. Sharing parts of it again:

During the Bakri Eid festival, a record amount of remittances come to Bangladesh. Many banks reported that. However, this Bakri Eid witnessed fewer animal sacrifices this year as cattle prices were beyond many people’s reach. Amount of Haseel(fee collected from sold animal by the makeshift market authority) was also lower. That means households did not spend all the money sent by the dear ones from abroad. They may be lying in the banks. And govt also paid cash incentives to those remittances. Are those bank accounts belong to true individuals? Trouble ridden banks have limited scope for raising their revenue. Opportunistic motive may play a role here to grab the benefits of cash incentives for remitters. Similarly, we have noticed exporters do not feel encouraged to bring the export proceeds at home. The result is huge differences between the stat produced by EPB and that by Bangladesh Bank. But they enjoyed special benefits and incentives while processing the export orders. True export earnings should be the earnings brought to home. And incentives should only be given to this amount.

We have already witnessed that USA surpassed UAE and other countries and became one of the top three remittance sources. US visa restrictions facilitated the transfers. Experts and press speculated that certain quarters took advantage of the discrepancy between the official and market rates and made a fortune out of this.

Cash incentives on remittances only aggravate the ongoing profiteering problem instead of solving it.In another piece titled “Let The Market Decide The Exchange Rate” ²back in June,I spelled out how this profiteering unfolds.Sharing parts of it again:

In addition, setting the exchange rate at multiple levels also encourage money laundering. Remember that there is unprecedented hike in policy rates in occidental countries. In particular, USA surpassed all of them. So dollar deposits earn more than other currency deposits. So investment, clandestine money flow end up in America. This partly explains 94% reduction in the deposits held by Bangladeshis in Swiss banks. When Canada,UK toughened their immigration policy ,Bangladeshi deposits in Swiss banks swelled. By not allowing Taka to depreciate further and not raising the policy rate enough,we are making it easier for the wealthy to invest in these countries. Many of our exporters and importers have partners abroad. Through them they can put their money into these foreign currency deposits or cut some sort of currency swap agreements to take advantage of the arbitrage opportunity if domestic exchange rate is not favorable enough. If they see interest rate will rise in future and Taka will depreciate more, then they will prefer to bring the export proceeds later to gain more. That is why the best remedy is to trust the market and let it fix the rate. This will wither away all the speculative motive. However, the current decision of the central bank has introduced friction into market, which in the end helps the currency speculator.

Notes And References

1. "Is MPS Working?", Rezaul Hoque,September 15,2023,https://hoquestake.blogspot.com.Here is the link : https://hoquestake.blogspot.com/2023/09/is-mps-working.html?m=1
2. " Let The Market Decide The Exchange Rate",Rezaul Hoque,June 30,2023,https://hoquestake.blogspot.com.Here is the link: https://hoquestake.blogspot.com/2023/06/let-market-decide-exchange-rate.html?m=1