The cabinet is expected to give its nod today (Monday) to the proposed amendment to the coinage law of 1972 with a view to establishing the government control over note and coin of taka-five denomination.
Officials familiar with the development told the FE that the finance division had already prepared elaborate notes on the change of authority and sent to the cabinet division for taking necessary actions.
The government move is meant for expanding its monetary clout on five-taka note and coin as the purchasing power of the existing Tk 1.0 and Tk 2.0 currency units is eroding fast.
"We're expecting the cabinet will give its nod in its tomorrow (Monday) meeting," said a senior finance division official Sunday.
He said after approval from the cabinet the matter will go to parliament for amending the Bangladesh Coinage Order 1972.
Officials at the finance division said such extended control over the paper and metal currency is apparently aimed at helping government meet its monetary deficits to a limited extent.
Economists felt that the move wouldn't help much in narrowing the monetary deficit in government coffers as the aggregate value of coins and notes of Tk 5.0 denomination in circulation is around Tk 4.0 billion.
But finance division officials believe this will help the government reduce its borrowing from the central bank gradually by Tk 7.9 billion.
It is also believed that there would be no additional inflationary pressure because of the government's control over taka-five currency and note as it will just shift ownership of the units of money.
Out of the total currency in circulation, the finance ministry hopes, the approval will raise the ratio of government share in the entire currency to 1.50 per cent from present 0.83 per cent.
Currently, the Government of Bangladesh issues Tk 1.0 and Tk 2.0 notes and coins. The use of these notes and coins is far less than before because of erosion in their value over time.
According to the note prepared by finance division, if calculated on the GDP deflator, the purchasing power of Tk 1.0 of 1974-75 lost its worth and equalled to Tk 12.45 in 2014. Alternatively, the purchasing power of Tk 1.0 in 2014 was equivalent to Tk 0.08 in 1974-75.
Commenting on the government move, Dr Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh (PRI), said this will not help the government much as the aggregate amount to be obtained is not so big.
He said the 'seigniorage' benefits to be accrued from printing the notes and coins of taka-five denomination by government are not big as well.
Seigniorage is also spelt as seignorage or seigneurage. The term, derived from old French 'seigneuriage' (right of the lord (seigneur) to mint money), is the difference between the value of money and the cost of printing and distributing it.
Mr Mansur, who worked as the division chief at the International Monetary Fund (IMF) at its Middle East and Central Asia Office, said the central bank of Bangladesh has long experiences in printing and security affairs on the notes.
He said Bangladesh Bank gives dividends to the national exchequer out of the benefits from the seigniorage. "Then, why the government wants to take control of the currency?"
On the other hand, Dr Zahid Hussain, lead economist at the Dhaka office of the World Bank, said the demand for the Tk 1.0 and Tk 2.0 denominations eroded fast mainly due to the rise in inflation, especially, in recent years.
He said this is a right step by the government on the issue as it works as a guarantee of the banknotes.
Dr Hussain said there is a trend of controlling such type of low-denomination currencies by Government historically-not only in Bangladesh but across the world.
During the era of Gold Standard, government used to provide guarantee of giving gold the equivalent of the notes given by the bearer.
But, in modern era, Government promises to give the same amount of legal tenders to meet the financial obligations. The amount is equivalent to the notes or coins that bearer wants to exchange for.
Dr Hussain said Tk 1.0 and Tk 2.0 are getting phased out naturally, so there is need for another denomination that will actually work as guarantee on the banknotes.
The finance minister in January last termed the lower-denomination notes 'useless', and said that the government would phase out Tk 1.0 and Tk 2.0 notes from circulation. And Tk 5.0 would be the lowest denomination instead of the existing Tk 2.0.
But the following day the finance minister withdrew his words.
The government issued Tk 1.0 and Tk 2.0 notes and coins as government currency after the Liberation War and in 1989 respectively, noted the proposal.
jasimharoon@yahoo.com
