Hundi-the ‘main culprit’ behind dollar crisis

Ibrahim Khalil Jewel: In recent months, Bangladesh has been experiencing extreme dollar crisis, causing concern among the country’s policymakers, businessmen and citizens alike. The crisis has been primarily attributed to a number of factors, including a surge in imports, a decline in remittances, and a reduction in foreign investment. However, one of the main causes of dollar crisis is “Hundi” i.e. sending remittance out of the banking channel.
The use of Hundi, an illegal and informal money transfer system, is believed to be one of the major contributors to the dollar crisis in Bangladesh.
Hundi is a traditional method of transferring money between countries that bypasses formal banking channels. It involves an informal network of money brokers who facilitate the transfer of funds between individuals and businesses in different countries. The system operates outside of formal regulations and often involves cash transactions, making it difficult to monitor and regulate.
In Bangladesh, Hundi has been used as a means of transferring large sums of money, often in dollars, without going through the formal banking system. This has resulted in a significant amount of foreign currency being circulated outside of the official channels, leading to a shortage of dollars in the market.
A Bangladeshi migrant in Italy told Daily Industry on condition of anonymity that most the Bangladeshis living in Italy send money to their nears and dears in the country through Hundi, because they get more Bangladeshi Taka against a Euro or dollar in Hundi than the banking channel. A Bangladeshi national living in USA told that they get Tk 114 against a dollar if they send money through Hundi, where they get Tk 108 against a dollar if they send money through banks.
It is also learnt from the expatriates that the money launderers laundered huge money through hundi. The use of Hundi has also had other negative consequences for the economy. It has facilitated money laundering, tax evasion, and corruption, undermining the country’s financial system and
creating an uneven playing field for businesses.
The government has taken steps to crack down on the use of Hundi, including launching a series of raids on suspected Hundi operators and tightening regulations on money transfer services. However, the practice continues to persist, and its impact on the economy remains significant.
To address the issue, experts suggest that the government should focus on improving the formal banking system and creating greater transparency in financial transactions. This could involve investing in technology to modernize the banking sector, improving regulations to prevent money laundering and tax evasion, and promoting financial literacy among citizens.
While the dollar crisis in Bangladesh has multiple causes, the use of Hundi has been identified as a significant factor. Addressing this issue will require a concerted effort from the government, financial institutions, and citizens to create a more transparent and regulated financial system that can support the country’s economic growth and development.
Another major reason behind the dollar crisis is the significant increase in imports. As the country’s economy has grown in recent years, the demand for imported goods has also risen sharply. This has put a strain on the country’s foreign exchange reserves, leading to a shortage of dollars in the market.
In addition, Bangladesh has been hit hard by the COVID-19 pandemic, which has resulted in a significant reduction in remittances from Bangladeshi workers abroad. This has had a direct impact on the country’s foreign exchange reserves, as remittances are a major source of foreign currency inflows for Bangladesh.
Furthermore, the country has also experienced a reduction in foreign investment, which has contributed to the dollar crisis. This is due to a number of factors, including lack of infrastructure, and a challenging business environment.
The government of Bangladesh has taken several steps to address the dollar crisis, including tightening import regulations and increasing interest rates to encourage foreign investment. Additionally, the central bank has intervened in the foreign exchange market to stabilize the value of the Bangladeshi taka against the dollar.
However, the dollar crisis remains a significant concern for Bangladesh, as it has the potential to impact the country’s economic growth and development.
The impact of the dollar crisis has been felt across various sectors of the economy. For example, the shortage of dollars has caused a rise in the price of imported goods, making them more expensive for consumers. This has led to inflation and a decrease in purchasing power for many Bangladeshis.
The crisis has also affected businesses that rely on imports or foreign currency loans to operate. With the shortage of dollars, these businesses have struggled to access the necessary funds, leading to a slowdown in economic activity.
Furthermore, the crisis has also affected the country’s foreign debt repayment capacity. Bangladesh has borrowed heavily from foreign lenders in recent years to fund various development projects, and the shortage of dollars has made it challenging to repay these debts on time.
The government has been working to address the crisis by taking measures to increase exports and reduce imports. In addition, the central bank has been working to attract more foreign investment by offering incentives and easing regulations.
Despite these efforts, the crisis is not expected to be resolved overnight. It will require a coordinated effort from the government, businesses, and citizens to address the underlying causes of the crisis and build a more resilient economy.