Credibility of the banking system needs to be bolstered

The cyber heist in the reserve account of the Bangladesh Bank hit the headlines of electronic and print media. This was reported to be the first-ever stealing from any central bank account with the US Federal Reserve Bank. The hackers attempted to steal $1.0 billion but could only get $101 million and sent the money to Sri Lanka and the Philippines on February 05, 2016. As the Sri Lankan bank protected $20 million, net stealing was $81 million in the Philippines. Our central bank authorities  kept this theft case undisclosed for one month. Meanwhile, the government has engaged a civil probe panel, cyber specialists, police intelligence unit and even foreign intelligence units in its investigation.
Stealing reserves from the central bank is not like loan scams of commercial banks. If a part of the loan enters our economy, it will raise the gross domestic product (GDP) equal to the loan amount as a multiplier effect in macroeconomics. Almost all guilty parties of the loan scams have been caught and any sanctions would deter others at home.
However, the solution of reserve theft does not lie with the recovery of the money under anti-money laundering regulations abroad. Will any punishment to the thieves in the Philippines create deterrence in other countries with different legal systems? If the hackers gain information more than the central bank about its cyber security system, the Bangladesh Bank (BB) cannot shirk its moral responsibility for its institutional security.
Emeritus professor Dasgupta of the Cambridge University gives the example of reputed banks as a model of sustainable institutions. The banks uphold trust level higher than many other institutions because of their higher economic interdependency.
The credibility of banks was emphasised in the New Deal programmes of US president Roosevelt. He declared closure of all scheduled banks and reopened their operations after four days with well-built infrastructure in place. It was done to regain economic trust among common people during the Great Depression in 1930s.
The bank is also appraised as a credible institution in poor countries amid degrading social trust. If the credibility of our central bank becomes questionable, what will be the base of economic transactions in our developing economy?  The Bangladesh economy has made appreciable progress with low level of its competitiveness. It has achieved a score of 3.7 out of 10 in the global competitiveness index during 2006 and 2013. Its labour-intensive readymade garments (RMG) industry was one of the bases of initiating the take-off of the economy in the early 1990s. The RMG export accounts for 81 per cent of national export and our expatriates remit $15 billion in a year which in turn has contributed to a high foreign exchange reserve of $28 billion. The credibility of our central bank must be regained and bolstered to  continue  the smooth inflow of remittances. It's good that our government looks strict to identify local cohorts, if any, who helped steal reserves.
The new BB governor has taken charge of a large banking industry. Its financial inclusion has been widened to millions of clients with digital operational management. The digital clientele with 10 million debit-cards for automated teller machines (ATM) and money transfer with mobile phones have largely raised money circulation. Moreover, our remittance inflow increased a lot due to digital overseas transfer system of the Western Union, Moneygram and a few other firms. However, a few foreigners have even been caught for digital stealing using skimming devices in ATM booths. The cyber heist in the central bank's reserve account and ATM heist in branches of commercial banks   expose  our weak security devices. The appraisal of digital security and related structural adjustment is needed to plug the loopholes in our central as well as scheduled banks.
We expect the new BB governor to take a few confidence-building measures in addition to updating of digital security. The central bank must not wallop monetary tools like a sudden rise in the statutory cash reserve ratio for schedule banks which was indirectly responsible for stock market crash in 2010. Our scheduled banks are burdened with idle money for weak demand for loans and with ever-growing default loans. The new administration is expected to be more vigilant to rein in bad loans. The Bangladesh Bank in harmony with the government should supply adequate coins of one, two and five taka to regain public trust on official currencies. Moreover, a systematic reform is necessary to enable our central bank to administer a credible banking system in the country.
The writer is Associate Professor,
 Department of Economics, Comilla University.
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