Money outside banks rising amid disconcerting road ruckus

An ambiance of uncertainty amid the latest road ruckus only accelerates the switch of cash from bank vaults into private coffers as some ATM booths went dry for some recent days.
The volume of out-of-bank currency, euphemistically called 'mattress money', amounted to Tk 2.7 trillion as of last May, and bankers say they still feel the pressure of withdrawal on their stock in vaults.
Sources say cash withdrawal from the banking system seems on the rise in recent days as people in large numbers were seen cashing out their deposits both from counters and ATMs (automated teller machine).
Officials and bankers admit the currency switch, saying that the upward trend in withdrawing money from the banking system is because people did not get the transaction facility in any form for several days due mainly to the recent nationwide internet outage amid violence during massive job-quota protests.
People, somehow, managed their living costs during the troubled times. Once the transaction services resumed with restoration of internet services, the tendency of fund withdrawing from the banks to meet these expenses gathers pace.
But, they said, such upturn in currency flight from banks-if it continued for few more days-could impact the banks' liquidity situation and squeeze money flow in the economy.
Managing director and chief executive officer (CEO) of Modhumoti Bank PLC Md. Shafiul Azam notes that clients did not get the transaction facility either from banks or mobile financial services for five days in a row because of the complete internet shutdown across the country.
But they had to meet their daily expenses either through borrowing funds from others or from dues. Once the services are resumed, the cash- withdrawing tendency slightly goes up, which is natural, he explains the exigencies.
"I think it (cash withdrawal) would be normal within few days."
Seeking anonymity, an official of Bangladesh Bank (BB), the central bank, said the rising trend in taking out money from the banks is expected. But it would be a matter of concern if the trend continued for few more days as the amount of deposit outflows from banks continued rising in recent months.
According to available BB data, the volume of mattress money or currency outside banks ballooned to Tk 2.70 trillion in May last despite a sharp rise in deposit rates, intensifying liquidity pressure in commercial banks.
Sources in the central bank say the volume of out-of-bank currency kept declining gradually since June 2023 through the first four months of the current fiscal year (FY'24) in a much-needed respite to the commercial lenders at a time when liquidity situation continued tightening.
But, since the month of November last year, it has gone into a reverse course with the volume of currency outside bank vaults having increased by around Tk 25 billion to Tk 2.48 trillion from October's count of Tk 2.45 trillion, according to the latest BB data.
The upward trend went past December, January, February, March, April and May with the figures reading Tk 2.55 trillion, Tk 2.57 trillion and Tk 2.58 trillion, Tk 2.61 trillion, Tk 2.64 trillion and Tk 2.70 trillion respectively.
As the demand for cash continues rising, bank borrowing through interbank sources kept climbing at higher rates. Riding the higher money demand, the call-money rate rose to 9:12 per cent on May 30, 2024 from 8.72 per cent a month ago.
Officials and money-market analysts cited factors like growing yield on government securities, inflationary burden and the advent of season of festivals, wedding in particular, and pre-Eid seasons behind the surge in mattress money.
As the yield on government securities kept rising after the central bank tightened money supply to contain inflation, many institutional and individual depositors in banking industry started diverting their funds into the risk-free investment instruments.
As the lending rate in the banking sector as part of the central bank's inflation-containing measures rose around 14 per cent, the rates for deposits keep rising, too, crossing 10 per cent. Belying the bets, the volume of currency outside the banks has been on an upturn in recent months, the BB official said.
About the swelling of mattress money, managing director and CEO of Dhaka Bank PLC Emranul Huq says because of higher returns, institutional and individual investors in banks have already started diverting their funds into government treasuries: treasury bills and bonds.
"This could be a major reason behind the rise in currency outside the banks."
Simultaneously, the experienced banker says, there are many people, businesspeople in particular, who invested their deposited money in their businesses or personal purposes prior to Eid-ul-Azha, observed mid-June last.
"It could be another reason," the bank's top executive adds.
Contacted, Policy Exchange of Bangladesh chairman Dr M Masrur Reaz said higher-inflation regime is another factor as people have to count higher cost of living.
"Although the rate of inflation officially dropped to 9.72 per cent in June from May's 9.90 per cent, but the price of commodities in the market does not indicate any fall. So, people might withdraw deposits for their living."

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