Special Correspondent :
The volume of currency outside banks has grown significantly in the wake of big cash withdrawal by the clients ahead of the national election, sending many banks to liquidity crisis.
The currency outside the banking system rose by 9.71 per cent to Tk 13,90,781 crore until October 2018 from Tk12, 67,646 crore during the corresponding month of 2017, according to the central bank’s latest statistics.
“Cash requirement has increased for election expenditure leading to sudden growth in currency outside the banking system,” Dr AB Mirza Azizul Islam, former Finance Adviser to the Caretaker Government, told The New Nation yesterday.
He said, it is a normal trend and we have not been worried about it. The situation will become normal after the national election scheduled to be held on December 30.
A candidate can spend Tk 10 per voter for electioneering in the upcoming parliamentary polls. His/her total spending, however, in no way can exceed Tk 25 lakh, the ceiling of maximum expenditure, even if the number of voters in a constituency is more than 2.5 lakh, according to a notification issued by the Election Commission.
“But most candidates will spend beyond the limit as there is no effective mechanism to curb the illegal spending,” said Dr AB Mirza Azizul Islam.
He also said that many banks have already plunged into liquidity crisis following large cash withdrawal by their clients. The money is believed to be used in election campaign some wealthy candidates also pulled out big money from banks ahead of election fearing political uncertainty.
According to media reports, 21 banks have borrowed Tk 3,500 crore from the central bank up to December 20 to meet their liquidity crisis.
The inter-bank borrowing was highest on December 18 when Tk 2, 322.71 crore was lent between banks. “Big cash withdrawals ahead of the general election and bank holiday pushed many banks to fund crisis forcing them to borrow from central bank and call money market,” a senior Bangladesh Bank official told The New Nation yesterday.
“Use of money usually rises significantly during election causing a large outflow of liquid fund from banking system. This may be happened this time also resulting major growth in currency outside banks,” former Bangladesh Bank Deputy Governor Dr Khandoker Ibrahim Khaled told The New Nation.
He said, the trend suggests that a section of people is holding the cash ahead of election to use it for various purposes.
When asked, Dr Khandoker Ibrahim Khaled said, it is empirical that political uncertainty in the run up to general election results in a massive money laundering and capital flight.
“Big money withdrawal from banks ahead of election may be indicating the fact along with other reasons. The central bank should look into matter whether money was flowing beyond the country under the prevailing situation,” he added.
Dr Khandoker Ibrahim Khaled further said, the unusual rise in the volume of currency outside the banking system would affect the deposit growth and thus will push up lending rates amid liquidity crisis in banks. It can also push up the inflationary pressure on the economy in future.
