The Bangladesh Bank sold $11.67 billion from its foreign exchange reserves to banks in less than 10 months amid a severe dollar crisis faced by the country’s banks.

According to Bangladesh Bank data, the central bank sold $6.7 billion to banks in July-December, the first six months of the financial year of 2023-24, and the sales crossed $11 billion on April 22.

Bankers said that the BB took various steps to save foreign exchange reserves from draining, but no step was working.

This significant dollar intervention has put pressures on the country’s foreign exchange reserves, which, in accordance with International Monetary Fund guidelines, dropped to $19.89 billion on April 17.

The reserves stood at $41.8 billion on June 2022 and $46.2 billion in September 2021.

Over the past 34 months, the Bangladesh Bank has sold approximately $32.79 billion, including $13.5 billion in the financial year 2022-23 and $7.62 billion in FY22, from its foreign exchange reserves to banks.

The ongoing dollar crisis has made it challenging for banks to settle import payments and open letters of credit, posing significant challenges for businesses.

The increased dollar sales have absorbed a significant amount of local currency from banks, impacting the liquidity condition in the banking sector.

The amount of excess liquidity in the country’s banking sector plunged to Tk 1.54 lakh crore at the end of January 2024 compared with that of Tk 1.6 lakh crore in December 2023 and Tk 2.03 lakh crore in June 2022.

Settling high import payments was the main reason for the depletion of the foreign exchange reserve, BB officials said.

The situation was further compounded by a sluggish growth in remittances and export earnings.

Since April 2022, the government and the Bangladesh Bank have implemented a series of initiatives to curb a significant growth of imports.

In the first eight months of FY24, the country’s import payments declined by 15.36 per cent to $40.88 billion compared with those of $48.3 billion in the same period in the previous year.

The current dollar shortage has already forced the government to secure $4.7 billion in loans from the International Monetary Fund over a period of three years.

The Bangladesh Bank has adopted a market-based and unified exchange rate regime, allowing the exchange rate to be determined by market forces.

Besides, the BB has also decided to compile and publish gross international reserve in line with the BPM6 (Balance of Payments and International Investment Position Manual, 6th edition).

Currently, the BB is selling dollars at Tk 110 a dollar, which is also the inter-bank dollar rate.

However, many banks are collecting remittances at rates as high as Tk 118 each to meet their demand, despite the rate being set at Tk 110 each by the Association of Bankers, Bangladesh and the Bangladesh Foreign Exchange Dealers’ Association.