Tk 5.0 likely to become treasury note, coin

The government moves to take over control on notes and coins of taka-five denomination, primarily to expand its bases on the legal tenders.

Such extended control over the paper currency and coins is apparently aimed at helping the government meet its deficits.

Economists conversant with financial affairs differed on the government move. Some of them smelt a rat in the move, as they foresee a switchover of control on all banknotes from the central bank.       

They argued that this 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.

Some others moved farther afield to argue that this would help establish the government control over all banknotes as treasury notes work as a guarantor of the banknotes.

Currently, the Government of Bangladesh issues Tk 1.0 and Tk 2.0 notes and coins. Their usages have been eroding away fast following high inflation in the economy.

In line with this initiative, a process is underway to make necessary amendments to the existing treasury acts and other related formalities that will require parliamentary approval.

Officials at the finance division, who are working on the matter, told the FE that the finance minister had already given some observations on the file forwarded to him.

"We're now working as per the finance minister's advice," a senior official at the division told the FE Wednesday last.

However, the finance official hinted that it would take at least one year more as there is the need for amending the laws.

Dr Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh (PRI), thinks 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 also spells 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.

"I think Bangladesh Bank is much capable of printing and supervising the notes, then why the government?" He noted.

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 has eroded fast mainly due to the rise in inflation, especially, in recent years.

"In my view, this is the 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 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.

"As Tk 1 and Tk 2 are getting phased out naturally, so there is need for another denomination that will actually work as guarantee of the banknotes," Dr Hussain noted.

When contacted, sources at the central bank said they will do as the government orders.

"The banknotes and coins of five denominations will be withdrawn from the market after government's issuance of the same," said an official working at the Bangladesh Bank's Department of Currency Management.

They said the central bank has been issuing the coins and notes as the government is yet to give any order in this respect.

Habibur Rahman, deputy general manager at the Department of Currency Management, told the FE: "We've completed another fresh tender for printing notes of taka-five denomination recently."

However, Finance Minister AMA Muhith last January told the media that government would withdraw Tk 1.0 and Tk 2.0 notes from circulation.

The minister had told the media that Tk 5.0 would be the lowest denomination instead of the existing Tk 2.0.

He had stated so as media reports said that the lower-denomination notes are 'useless'.

At present, notes of taka-five denomination and above are issued by Bangladesh Bank and Tk 1.0 and Tk 2.0 coins and notes by the finance ministry with finance secretary's signature.

Bangladesh has now Tk 5 paper currency numbering 700 million pieces and coins of the same denomination counting 50 million pieces.

    jasimharoon@yahoo.com