A dollar-taka currency swap between Bangladesh's central bank and commercial banks is envisaged as a bail-in for mitigating volatility on the forex market, sources say.
Such an arrangement will help the foreign currency- starved banks get the greenback from the Bangladesh Bank (BB) in exchange for the local currency, two senior officials of the BB, familiar with the matter, told the FE Wednesday.
On the other hand, commercial banks that have adequate dollars in vault but need local currency can also sign exchange deal with the BB.
The financial market is now facing both types of problems-some banks have adequate foreign exchange but lack local currency, and vice-versa.
"We've planned to introduce the swap network shortly with the banks," Md Mezbaul Haque, spokesperson for the BB, told the FE writer.
He mentions that such arrangements are available in many economies, and even bank- to-bank swap at home.
He says the BB Foreign Exchange Policy Department has been working on the swap. The Foreign Reserves and Treasury Management Department will execute the plan.
On the other hand, the central bank has yet to decide as to whether interest rates will be fixed or variable.
Another senior official hints that the rate of interest will be fixed for the Sharih-based banks.
The lending tenure will not be overnight or so. "It will not be an overnight arrangement rather its tenure will be much longer."
"One bank now in need of dollar takes it in exchange for local taka, and they will refund when they have adequate dollars," the senior official told the FE.
Earlier, the BB had turned down the private banks' request to provide them with dollar support from the foreign-exchange reserves to meet the cost of imports.
They argued taking dollars from the central bank in exchange for taka would reduce the dollar crisis on the market to some extent.
According to the latest data, the central bank's forex reserves stand at about $20 billion, as of January 24, as per IMF arithmetic called BPM6. The total liquid asset of the scheduled banks as of November was recorded at Tk 4.1 trillion.
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