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When words come from a horse's mouth, one has justified reasons to believe those. Mr AHM Mustafa Kamal, who now heads the country's exchequer, talking to newsmen Wednesday last, said nearly half of the remittance inflow came through 'hundi' (informal) channels. The minister said the estimate was the outcome of the personal research he had carried out as the planning minister.
If the minister's statement was true, then an amount almost equivalent to the money remitted by the expatriate Bangladeshis through formal channels enters the economy through informal routes and it escapes the official estimate. Thus, the government or the central bank remains clueless about the destinations of a vast sum of foreign exchange.
It is beyond doubt that an informal foreign exchange market has been thriving on a huge inflow of foreign currencies coming through hundi channels. The government in recent years has been providing incentives---initially, at 2.0 per cent and now at 2.5 per cent--- to attract more remittance money through formal channels. The incentives have created an encouraging impact but now the situation has changed because of the forex market volatility. Banks are now offering higher rates for the greenback. The rate is now far more attractive in the kerb market. So, it is assumed that the inflow of remittance money through hundi channels has increased lately.
The country's forex reserve has come under pressure in recent months because of higher spending on imports, nominal growth in export earnings and a decline in inward remittance inflow. The Covid-19 pandemic and the Russian invasion of Ukraine have created an unsettling effect on the global economy and Bangladesh, like many other countries, is bearing the brunt. The hike in the price of fuels and foods in the international market, in particular, has been phenomenal.
The presence of a large and active informal foreign exchange market alongside formal institutions such as banks does always encourage the inflow of remittance money through the hundi channels. It is, however, difficult to stop operations of such markets, because of the demand-supply mismatch. The expatriate workers can hardly check the temptation of earning a few bucks more against the money they remit from time to time.
Since the amount of remittance money, as indicated by the incumbent finance minister, entering the informal market is huge, it might be playing a role in the capital flight. None knows for sure the actual volume of money taken out of the country every year through illegal channels, but it must be a substantial one---between USD 5.0 and 9.0 billion. A part of the sum is thought to be transferred through formal trade transactions. Missinvoicing is the tool used here. Hundi operators have always been innovative in finding out new techniques to help people transfer ill-gotten wealth to destinations of their choice.
The central bank has formed a Financial Intelligence Unit (FIU) which is tasked to locate the illegal inward and outward fund transfers. But it is yet to make its presence felt in terms of its performance.
The central bank and relevant others are now trying to take action against unauthorized and errant private foreign exchange dealers in the face of forex market volatility. Such actions have been long overdue. Besides, there could be formal institutional dealers who might have played a role to maximize their profit, taking advantage of a volatile forex market. The central bank should also try to pin down and punish them.