Reserve money shrinks to Tk 3.3t as ‘devolvement’ printing halted

A squeeze in the splurge of money on flow is tangible as the stock with Bangladesh Bank stayed on the wane, amounting to Tk 3.3 trillion as of mid- March, following a pause in printing 'high-powered' money.
According to some economists, this is a good sign as it may help contain inflationary pressures on the economy amid the prevailing price surges of goods and services.
Also called "reserve money", a key instrument in the hand of the central bank to play when needed, declined 11.86 per cent as of March 14 last from June 2023.
A one-taka increase in the reserves multiplies the same five times in the economy as a "money-multiplier" effect.
Officials familiar with the developments at the central bank told the FE that Bangladesh Bank's net foreign asset dropped on the sale of higher volumes of the US dollar to help meet some urgent liabilities.
"We sold much greenback than we received, leading to a drop in net foreign asset," said one official.
There are many exigent payments for the government and its autonomous bodies to procure goods from abroad, and under such situations, the central bank has to provide dollars.
The official adds: the first thing that happens with a decrease in the money supply is it pushes the interest rate up. And the consumers are now also less interested in borrowing to buy luxury goods. Thus spending decreases and inflation starts to decrease.
Giving funds through 'devolvement' operation by the Bangladesh Bank remained stopped and it also contributed much to the reduction in the money flow.
Devolvement means printing money by the central bank. The regulator maintains more than 100 accounts on behalf of Government. Once there is a lower balance it also impacts the volume of high-powered money.
Economists believe that the development of the reserve money or base money is in the right direction as such positions deserve merit under the present situation marked by volatility.
They, however, feel that such development at the cost of dollar is not good.
"I think this is good, but at once the dollar or net foreign -asset reduction of the central bank is not good," says Dr Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh or PRI, a private think-tank in Bangladesh.
The economist, however, mentions that the central bank is not giving funds to the central bank by printing money is another reason for the squeeze.
Dr M. Masrur Reaz, chairman and CEO of Policy Exchange Bangladesh, another private think-tank, echoes what Dr Mansur says about the ongoing exercise of checks and balances on the monetary front. He says there were many bank bailouts by printing money during the coronavirus period.
"Such funding has stoked the inflation much."
He, however, notes that the inflation still remained high as domino effect of the higher depreciation of money coupled with compressed imports for more than one year.
The inflation in March last was recorded at 9.81 per cent on a point-to-point basis. Food inflation is perceived, as of now, to be above double-digit levels.
Dr Masrur, however, points out that the government now needs much lower borrowing as it has received much funds from the IMF, the ADB, and the World Bank as budgetary support to execute its deficit budget.
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