A record amount of money is now outside the country's banking system, meaning people have more money in their hands than at any time before. At the end of June last, more than Tk 3.0 trillion was in circulation, according to Bangladesh Bank statistics.
The reasons for so much money remaining in the hands of people could be more than one. Economists list factors such as low yield/ interest offered by banks and non-banking institutions to depositors, the inflow of remittances through informal channels and large-scale printing of high-powered money by the central bank to meet the insatiable appetite of the government for funds.
The presence of more than the usual amount of money in circulation does not bode well for the economy. It usually heightens inflationary pressure.
Thus, one reason for inflation in Bangladesh showing signs of stubbornness could be that a large amount of money remains outside the banking system. Globally, inflation has been on the decline, mainly because of the fall in the prices of most commodities. The situation in Bangladesh is altogether different. For the past few months, inflation has remained close to 10 per cent, and it is not showing any sign of abetting to a notable extent. In contrast, most South Asian countries are witnessing a different market trend. People often cite Sri Lankan examples. The island country faced an unprecedented economic crisis in 2022. With its foreign exchange reserve reaching its nadir, Sri Lanka's inflation level went up to 69.8 per cent in September of that year. But the rate started declining soon after the IMF confirmed a bailout package and the government introduced belt-tightening measures. In June last, the rate of inflation in Sri Lanka was 12 per cent, and in July last it came further down to 6.3 per cent.
The Bangladesh situation involving foreign exchange reserves, export receipts, and remittance earnings was far better than that of Sri Lanka. Bangladesh Taka has depreciated to around 23 per cent over one year, while Sri Lankan Rupee depreciated by over 44 per cent in December 2022.
So, it is not just external factors responsible for Bangladesh's ongoing economic woes. Internal mismanagement could be a major contributing factor here. No strong measures are also visible to correct the situation.
The supply of high-powered money that has a role in inflation has reportedly declined lately, primarily because of the rise in deposit rates. The government's borrowing from the banking system has, reportedly, increased to some extent recently. But given the anticipated political volatility in the coming months, a section of people might feel the necessity to keep funds with them as a precautionary measure.
But not all people can keep money with them since they do not have the means to save for the rainy days. What matters to them is surviving the odds of the present. Mishandling of the economic affairs by the people in the corridors of power makes the struggle of the poor and low-income people to survive the odds even more difficult. So, the presence of excessive funds, high-powered or otherwise, outside the banking system does not mean anything to the poor. Rather, it stokes inflation, intensifying their miseries.
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