BB’s dollar-taka swap facility boosts reserves by $100cr

Staff Reporter :
After the introduction of the Taka-Dollar swap facility by the Bangladesh Bank, the country’s foreign currency reserves have surged by $100 crore within a mere 15 days. A significant daily increase of nearly $10 crore was recorded on Wednesday alone.

This exchange mechanism between the central bank and commercial banks has played a crucial role in augmenting the foreign currency reserves.

Despite the overall rise in the central bank’s total reserves, it’s imperative to note that the actual reserves have not increased permanently.

The dollars deposited through the swap will need to be returned once the specified period concludes.

Bank officials and individuals associated with bank accounts have attested to the positive impact of the swap facility. Banks incur a maximum of 0.5% in expenses from their reserves when converting deposited dollars into Taka.

The remaining amount, up to 11.5%, can be invested in government treasury bills, offering an opportunity for interest earnings. Moreover, loans can be provided at an interest rate of 13.11%, presenting a chance for treasury management officials to increase income while reducing expenses.

Over the past two years, the Dollar crisis in Bangladesh has not completely abated. The central bank has consistently sold dollars from reserves to meet the government’s import obligations.

However, the Dollar market’s volatility has somewhat decreased, leading to a stable exchange rate fluctuating around 118-119 Taka, compared to the previous rate of 120 Taka or more.

The Bangladesh Bank determined the Dollar exchange rate through the ‘crawling peg’ method. However, the specific workings of this method in determining the Dollar price are yet to be finalized.

In light of these developments, Ahsan H Mansur, the executive director of the Policy Research Institute (PRI), expressed optimism, stating, “Due to the Dollar-Taka swap facility, our total reserves are increasing, which is a positive aspect. Both the central bank and commercial banks are benefiting from this.

The Dollar crisis has somewhat decreased with the increase in interest rates. If interest rates are raised a bit more, the crisis will further diminish. Increasing interest rates will bring the economy back on track.”

As of February 7, the foreign currency reserves of the Bangladesh Bank were $2508 crore. According to the International Monetary Fund’s (IMF) method, the reserves were $1995 crore on that day. By February 20, the total reserves increased to $2532 crore, and the latest data as of Wednesday shows reserves reaching $2634 crore.

Within the swap facility, banks have deposited $960 lakh to the central bank against taking Taka since February 19. Although banks have deposited dollars through the swap, they have not sold dollars from the reserves.

On Wednesday, Bangladesh Bank sold $3.5 crore to Janata Bank and leading banks to meet the import liabilities of the Bangladesh Petroleum Corporation (BPC).

The interest earned by banks by keeping dollars deposited with the Bangladesh Bank and taking Taka against it, when invested in government treasury bills for 91 days, is 11.40%.

On March 4, the government borrowed Tk 6682 crore through treasury bills with a maturity of 91 days.