Cash held outside the country’s banking system surged in July, driven by depositors’ decreased confidence and inflationary pressures.
According to Bangladesh Bank data, the currency outside banks increased to Tk 2,91,630 crore in July, up from Tk 2,90,436 crore in June, Tk 2,70,658 crore in May and Tk 2,64,349 crore in April.
Bankers said that depositors had been withdrawing significant amounts of money since the start of the year as they were worried about the safety of their funds due to widespread irregularities in the country’s banking sector during the Awami League regime which was ousted by a student-led mass uprising on August 5.
In July, withdrawal pressure intensified due to government restrictions imposed during the nationwide protests demanding reforms to the government job quota system, they said.
The Anti-Discrimination Students Movement, which organised the protests, ramped up its activities from July 1, leading to a nationwide curfew and internet blackout from July 19.
Bankers said that those measures brought banking and business activities to a halt, severely impacting depositors and businesses alike.
The unrest only ended after Sheikh Hasina resigned as prime minister on August 5 and fled to India, marking the end to her 15-year authoritarian rule.
The political instability in July prompted many to withdraw their money, fearing prolonged unrest and restrictions, bankers said.
Some politicians and business figures also moved large sums of money outside banks, anticipating a shift in the political landscape, they said.
Bankers also said that clients’ trust in the banking sector eroded amid massive loan scandals and irregularities in several banks.
Rising living costs also led many people to hold more cash in hand, they said.
The Bangladesh Bureau of Statistics reported that the inflation rate was 11.66 per cent in July. It, however, eased slightly to 10.49 per cent in August.
The inflation rate has remained about 10 per cent since March 2023.
Fixed-income and low-income households, in particular, have struggled to meet basic needs as commodity prices continued to rise, leading to more withdrawals than deposits.
The Bangladesh Bank data showed that deposits fell by Tk 8,197 crore, reaching Tk 17,34,026 crore in July (excluding interbank and government deposits), down from Tk 17,42,224 crore in June.
Loan disbursement also decreased by Tk 3,882 crore, totalling Tk 20,85,448 crore in July compared with that of Tk 20,89,330 crore in the previous month.
When large amounts of cash are kept outside banks, it undermines the central bank’s ability to control the money supply, which is essential for managing inflation and ensuring economic stability, bankers said.
