Economy has shrunk due to money laundering: Governor

Highlights:

• Bangladesh Bank is promoting cashless payments through Bangla QR campaigns, already held in 11 locations outside Dhaka
• Foreign exchange reserves have crossed $32 billion, but money supply must grow without triggering inflation
• Only 28% of transactions are digital, with lack of education slowing wider adoption
• Low-cost smartphones will be given to merchants, while bank MDs called for charge-free periods and lower QR fees

Bangladesh Bank Governor Ahsan H Mansur has said the financial sector has been compressed due to the laundering of a huge amount of money over the past few years.

"Now, we need to expand the financial sector by increasing the money supply. However, this must not be done by printing money. Rather, the money supply should be increased through natural means," he said on Monday (15 December) while speaking as the chief guest at a discussion organised by the Bangladesh Bank in Cox's Bazar as part of its cashless promotion campaign.

To reduce cash transactions, the Bangladesh Bank is running promotional campaigns in different regions of the country. 

Under the initiative of Bangladesh Bank, a two-day awareness and promotional program on the use of Bangla QR codes was held in Cox's Bazar on Sunday and Monday. SSL Commerz served as the lead partner for the event.

With the participation of various banks and financial institutions, the central bank has so far carried out cashless promotion programs at 11 locations outside Dhaka. 

Gradually, similar campaigns on Bangla QR codes will be conducted in other areas as well.

The keynote paper was presented by Rafeza Akhter Kanta, director of the Payment Systems Department of Bangladesh Bank, and MD Perwez Anzam Moonir Bangladesh Bank, additional director. 

At the event, the governor said the country's foreign exchange reserves have already increased to over $32 billion, which has somewhat increased the supply of money in the market. 

He emphasised that money supply should be increased in a way that keeps inflation under control, without printing new money. "Compared to China, India, Vietnam, and most other countries, Bangladesh's money supply relative to GDP is much lower."

He said if foreign currency supply can be increased through higher remittances, foreign loans, and investment, the supply of money through banking channels will also increase. 

"This will help expand the entire banking sector. Otherwise, an individual bank may grow, but the overall sector will not benefit. Without increasing money supply in the economy, expansion is not possible, nor will bank deposits increase."

He further stated, "A lot of money had previously gone out of the country. If that money were still in the economy, the current situation would not have arisen. Those funds must be brought back gradually, following a proper process."

He also said alongside debit cards, more emphasis must be placed on credit cards, and credit limits should be increased. 

"Fintech and financial inclusion are directly interconnected. All conventional banks will eventually become digital banks, which may take 10-15 years. Investment in this sector is necessary," he added.

Banks and MFS to take the initiative

Additional Director of Bangladesh Bank's Payment Systems Department MD Perwez Anzam Moonir presented a presentation on the current cashless society. 

He highlighted the potential and challenges of managing digital transactions in the country.

He said, "Currently, 28% of transactions are conducted through digital platforms. However, digital transactions increase during various festivals. Due to a lack of education, many people are reluctant to use digital transaction methods."

He added, "If we want to move Bangladesh forward digitally, banks, MFS providers, and all fintech companies must work together under a unified initiative."

He also noted that MFS providers have played the biggest role in familiarizing people with digital platforms in Bangladesh. Although gradually, the use of MFS is increasing even in rural areas.

Initiative to provide low-cost smartphones to merchants

To accelerate the adoption of digital platforms, low-cost smartphones will be provided to merchants with the support of three companies, said Rafeza Akhter Kanta, director of the Payment Systems Department of Bangladesh Bank.

She said, "Business owners are afraid to conduct digital transactions because they believe that digital payments may bring them under the tax net of the NBR. Although interoperable transactions began on 1 November this year, transactions have not yet reached the expected level as not all institutions are participating."

She added, "Under the initiative of City Bank, BRAC Bank, and Walton, low-cost smartphones will be provided to grassroots-level merchants. This will create greater interest in digital transactions at the grassroots level."

What bank MD's say 

At the event, managing directors of five banks delivered speeches, highlighting the use of Bangla QR codes and various challenges.

Brac Bank Managing Director Tareq Refat Ullah Khan said making one or two institutions cashless is not enough; the entire ecosystem needs to be made cashless.

Besides, Dutch-Bangla Bank Managing Director Abul Kashem Md Shirin said to encourage cashless transactions, small merchants should be given the facility of charge-free transactions for one or two years.

According to Pubali Bank Managing Director Mohammad Ali, when POS merchant settlement costs are reduced by up to 90%, there is no justification for charging Tk1.15 for QR transactions. He added that banks could bear this cost from their CSR funds.

Also commenting on the matter, Islami Bank Managing Director Omar Faruk Khan said significant progress has been made in digital payments due to various initiatives taken by Bangladesh Bank.

Sonali Bank has made considerable progress in digitisation, and all types of transactions, including app-based services, are now available, according to its Managing Director Shawkat Ali Khan