Business Desk :
Commercial banks in Bangladesh will have to perform their foreign currency clearing activities through the Real-Time Gross Settlement (RTGS) of the central bank from September 4.
The Bangladesh Bank issued a notice to this effect on Sunday. Currently, banks carry out the clearing of the foreign demand drafts (FDDs) issued in foreign currencies under the foreign currency clearing arrangement of the BB.
But from September 4, the clearing activities have to be conducted through the RTGS instead of FDD, said the BB.
According to the central bank, the whole foreign currency (FC) clearing and settlement process is still manual and paper-based which require the physical movement of instruments and officials, resulting in higher transaction cost and inconvenience.
In order to overcome the problem, the BB has decided to introduce FC clearing and settlement through the RTGS system.
To facilitate a safe, secure and efficient interbank payment system, the BB launched the BD-RTGS system in 2015, opening a new horizon in the payment ecosystem and accommodating instant settlement of large value and time-critical payments.
The system is capable of operating clearing and settlement in both local currency and foreign currency.
The BB is going to introduce clearing and settlement in foreign currencies: US dollar, Great Britain Pound, euro, Canadian dollar and Japanese yen. The clearing and settlement of the Chinese yuan will be incorporated in the RTGS system soon, it said.
RTGS is a credit transfer system and the operation of the FC in the RTGS system is similar to that of the local currency settlement system.
At the beginning of each business day, banks’ specific FC account will be debited and the related RTGS settlement account will be credited as per the standing instruction of the participants.
Then, transactions will be settled instantly and funds will be transferred to the beneficiary’s account. The transaction will be settled only when the RTGS settlement account of a specific currency has a sufficient balance.
At the end of the business day, the balance of the settlement account of the RTGS system will be transferred to the banks’ specific FC account. Thus, the FC clearing through the RTGS system will eliminate settlement risk as well as credit risk for the participants, said the central bank.
