Domestic assets accelerate money supply

Business Report :
The country’s total broad money supply (M2) in the banking sector is up 9.13% year on year (YOY) due to an increase in net domestic assets.
According to the most recent data from Bangladesh Bank (BB), the broad money supply (M2) in the banking industry was around Tk17.79 trillion in March 2023.
The figure stood at Tk16.29 trillion in the same month the year before.

According to central bank officials, the surge was caused by an increase in net domestic assets.

Bangladesh Bank intends to achieve 11.5% broad money growth by the end of June.

However, there are two types of assets, Net Domestic Assets (NDA) and Net Foreign Assets (NFA), and money growth comes from both.

Broad money encompasses not only notes and coins but also savings accounts and savings account deposits. Treasury bills and bonds are examples of broad money.
According to some economists, the government’s borrowing through treasury bills and bonds contributed significantly to the growth of broad money.

“Broad money is simply money in circulation, and this has risen dramatically in recent years,” Masrur Reaz, head of the Policy Exchange of Bangladesh, explained.
Following weak revenue growth, the government is borrowing money from both the banking system and the central bank.

He also stated that sales of savings certificates had declined as a result of the government tightening some restrictions for purchasing risk-free instruments.
The NFA will increase once the foreign exchange reserve grows, and the balance of payment difficulties will be relieved.

He highlighted that the BB is paying money to the government from its own coffer, which is equal to money printing.

“The broad money growth is primarily coming from net domestic assets (NDA),” remarked Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (PRI).

This should have been beneficial as it began to expand based on Net Foreign Assets (FDA).

According to him, this type of expansion could have an impact on the balance of payments and destabilize the foreign exchange market.
The NDA in Bangladesh is now optimistic and in contrast, the NFA contracted by 13.28% year on year in March.

He noted that the problem is that deposit growth in the banking industry has remained low at roughly 7.0%, which will have an impact on lending.