TDS Desk:

According to data from the Bangladesh Bank, remittances through formal channels totalled $26.67 billion from January to 28 December, an increase of about $4.7 billion from $21.92 billion in 2023

Bangladesh received nearly $27 billion in remittances this year – reflecting a 22% year-on-year increase – bolstered by a 9% rise in the official dollar rate and a decline in money laundering during the final five months.

According to data from the Bangladesh Bank, remittances through formal channels totalled $26.67 billion from January to 28 December, an increase of about $4.7 billion from $21.92 billion in 2023.

To understand this year’s remittance inflow, consider this: While Bangladesh received over $2 billion in remittances in just two months last year, the country surpassed $2 billion in all 11 months this year, except July when internet and banking disruptions related to a mass uprising and expatriates’ solidarity affected inflows.

As of 28 December, the latest remittance total is $2.42 billion, ranking second in the highest remittance months in history. The highest remittance, $2.59 billion, was received in July 2020 during the Covid period.

According to central bank data, the country’s gross foreign exchange reserves reached $21.33 billion yesterday, as per the IMF formula based on the Balance of Payments and International Investment Position Manual (BPM6).

Husne Ara Shikha, spokesperson for the Bangladesh Bank, told The Business Standard that the demand for hundi has decreased in recent months due to reduced money laundering.

As a result, a significant portion of remittances previously channelled through hundi – an informal cross-border money transfer system that bypasses the legal banking channels – is now coming through formal channels.

Additionally, the gap between the dollar rates in formal and informal channels has narrowed to nearly Tk1 due to the rise in the official dollar rate and reduced demand.

“Overall, we consider the growth in remittances to be positive, and we expect an even better inflow next year,” said Shikha, also an executive director of the central bank.

Dollar rate, falling hundi demand: Key drivers of remittance growth

Senior officials at several banks told TBS that the remittance market is highly sensitive to exchange rates. When the dollar rate rises, remittance inflows tend to increase.

September 2023 serves as a clear example: banks were instructed not to collect remittances at higher rates, and the central bank penalised the treasury heads of at least 10 banks for buying remittance dollars at inflated rates. As a result, remittances in September 2023 totalled only $1.33 billion.

However, after the interim government took power in August 2024 and increased the dollar rate, banks faced less pressure on remittance collection. This shift is now yielding positive results.

Analysis of central bank data shows that in early January 2024, the official dollar rate was Tk110. In the July-December monetary policy, the central bank devalued the currency by Tk7 – the largest single-day devaluation in history.

Banks were then instructed to buy and sell dollars based on a crawling peg mid-rate of Tk117, with verbal guidance to add a maximum of Tk1, bringing the rate to Tk118.

After the interim government took office in August, the rate was increased to Tk120. By December, the dollar rate rose to Tk128, but the central bank’s verbal instructions capped transactions at Tk123. This represents an increase of at least Tk10 or 9%.

Bankers said this upward trend in the dollar rate has contributed to the rise in remittances.

Fahmida Khatun, executive director of the Centre for Policy Dialogue, told TBS that the dollar rate is crucial in driving remittance inflows. When the dollar rate increases, remittances tend to rise.

Additionally, demand for hundi has declined since the interim government took office in August, though this change may be temporary. Khatun explained that it is difficult to reduce hundi demand in the long term due to the involvement of various international networks.

To further boost remittance inflows, the economist suggested offering social recognition to remitters alongside providing a favourable dollar rate.

She proposed initiatives such as improving transportation for returning expatriates, including facilitating access to bus terminals, as a way to encourage remittances through formal channels.

“If this recognition is given, remitters will be more likely to send money through official channels,” she added.