Digital payments may curb inflation

Improve transparency

Industry Desk: Digital payments may help curb inflation by reducing the cost of operations in supply chains for various businesses, experts have suggested, as the amount of ‘out of bank cash’ in the market has increased.
Bankers and practitioners also emphasized the role of digital payments in promoting transparency in the financial behavior of everyday people and business communities.
Syed Mahbubur Rahman, former chairman of the Association of Bankers Bangladesh (ABB), stated that digital payments assist businesses in maintaining transparency in financial transactions.
According to Mahbubur, who is also the managing director at Mutual Trust Bank, digital payments could potentially increase the velocity of inflation, depending on customer behavior. Digital platforms can help financial institutions channel mattress money into formal streams, as out of bank cash has recently risen and fueled inflation.
The amount of paper money outside the banking system after January this year was Tk 2.6 trillion, nearly 24.2 percent of the total Tk 14.88 trillion in deposits. This figure typically hovers around 12 percent, according to Bangladesh Bank.
Syed Mahbub believes that the situation of ‘out of bank cash’ is gradually improving in line with the conveyance of depositors to banks.
“There are factors such as tax coverage that influence people to keep money (even from legal sources) out of banks to avoid the tax net. As banks, we have a responsibility to enhance people’s confidence in conducting transactions through banks or digital wallets, fostering transparency across the board,” he added.
Market transformation specialist Rezaul Hossain believes that digitalization helps companies accurately identify customers, increase inclusivity with remote physical payments, and enable the sending and receiving of money and deposits into personal accounts.
“Simultaneously, direct product purchasing behavior will reduce middlemen, leading to a decrease in costs over time. Digital payment platforms can assist SMEs in obtaining financing without collateral, based on credit rating behavior. Credit rating data will be generated from their business transactions, both buying and selling. As these small businesses adopt digital payments without intermediaries, access to finance will boost their production capacity and sales, eventually causing business costs to gradually decrease and potentially lowering inflation,” Reza told.
The country’s overall inflation was recorded at 8.78 percent in February, compared to 8.57 percent in January, according to the Bangladesh Bureau of Statistics (BBS).
Planning Minister MA Mannan recently acknowledged that the country’s overall inflation may increase further.