Remittances Hit Record high in December

[eastwatch]

Remittances hit record high | Bangladesh | bdnews24.com

Remittances hit record high
Mon, Jan 2nd, 2012 8:55 pm
Abdur Rahim Harmachi
bdnews24.com Chief Economics Correspondent

Dhaka, Jan 2 (bdnews24.com) – Expatriates have set a new record by remitting around $ 1.15 billion in December, the central bank says.

The previous record was $ 1.1 billion, received in August.

"It (December remittance) was the highest last year, as also in Bangladesh's history. I hope the trend will continue in future as well," Bangladesh Bank governor Atiur Rahman told bdnews24.com on Monday.

"The central bank has taken several steps to increase remittance through banking channel. It's a reflection [of these steps]," he said. "We want 100 percent remittance to come through the banking channel. We are working on it."

Bangladesh Institute of Development Studies (BIDS) researcher Zaid Bakht said, "It's a welcome improvement amid the economic crisis. It will ease the balance of payment crisis."

According to Bakht, expatriates are remitting more as value of dollar rose against taka in recent past.

"Many expatriates might have had savings and they are sending the money to the country after the value of dollar went up. It might be the reason behind the increase in remittance," he said.

Banks sold dollar at Tk 82 on Monday, according to the Bangladesh Bank.

In the last year, value of dollar rose against taka by 15 percent, with December itself witnessing an increase by about Tk 5.

INCREASED TRANSFER OF FUNDS

The country received around $ 6.07 billion remittance in the first half of the current fiscal -- a 9.27-percent increase over $ 5.5 billion received in the same period the year before.

The rate of increase in remittance had been a measly 1 percent between July and December 2010.

Expatriates sent $ 1.01 billion in the first month of the current fiscal. The amount was $ 855.4 million in September 2011, $ 1.03 billion in October and $ 908.1 million in November.

The remittance inflow grew 25.92 percent in December 2011 in comparison with November, and 18.09 percent vis-à-vis December 2010.

While the flow of remittance usually increases before Eid-ul-Fitr and Eid-ul-Azha, December did not have any such festival, which should herald more cheers for the economy.

The increased rate of remittance has lifted some pressure off the central bank's foreign exchange reserve. The reserve, which was $ 9.2 billion two weeks ago, stood at $ 9.64 billion on Monday.

BB governor Atiur Rahman said letters were sent to Bangladesh missions in every country, asking them to inspire expatriates to remit more through banks. "Expatriates are requested to communicate with the central bank whenever they face any problem," he said.

According to BB, $303.9 million came through four state-owned commercial banks, while $ 10.5 million through two specialised banks. Thirty private banks handled remittance of $ 816.8 million and nine foreign banks $ 13 million, according to the central bank.

bdnews24.com/arh/ost/std/2051h

 

[eastwatch]

There could be two factors behind this surge of remittance. One is the devaluation of Taka. It is now $1=Tk.81 to Tk.82. Another may be the creation of new employments in the middle-east. Now that the Libiya war has finished and US troops are out of Iraq, it may induce more employment of foreign labours in these countries. However, volatile situation due to embargo on Iran may dampen the employment situation.

 

[integra]

^ Not sure about the latter but it seems the devaluation of taka is one of the
prime reasons behind the record influx. Sources predict that it's gonna end up
leveling at 95tk/dollar. Good news for you guys, bad news for us domestic chaps.

Surprisingly there seems to be a global move on weakening of domestic
currencies against dollar. Which includes most of the asian economies.
Still none of the aforementioned countries are facing double digit
inflation like us.

An interesting article, published today, let me share-----

Asia faces currency exchange volatility dilemma
Singapore, Jan 3 (bdnews24.com/Reuters) - The roller-coaster ride for Asian currencies, which saw only the yen and yuan post significant gains for the year against the US dollar, is set to continue in 2012.

While Japan actively sought to stem the yen's rise -- drawing US criticism last week -- China intervened to ensure the yuan ended the year at a new high. Both currencies appreciated roughly 5 percent in 2011 against the dollar.

The opposite approaches illustrate a dilemma facing Asian policymakers as they try to smooth out foreign exchange rate volatility, which shows no sign of abating in the new year. If the currency is too strong, exports get more expensive. Too weak, and imported inflation spikes and domestic buying power fades.

Singapore and South Korea provide two examples of how inflation can stay surprisingly high, even as declining global demand curbs exports and saps growth. Both the Singapore dollar and the won slipped against the greenback in 2011.

For Japan, which has been battling deflationary forces for two decades, rising prices would be a welcome change. Three times in 2011, Tokyo intervened in the currency market to try to weaken the yen, once with the help of Group of 7 nations after the March earthquake and tsunami, and twice unilaterally.

It was the solo moves that drew Washington's ire. The Treasury pointed out in its December 27 report to Congress on world currencies that the United States "did not support these interventions," and said Japan would be better served by taking steps to increase the dynamism of its domestic economy.

"The United States is saying, our recovery is dependent on the (US) dollar not becoming too strong," said Yukon Huang, an economist with the Washington-based Carnegie Endowment for International Peace.

"It's worried that there will be a global move for people to depreciate" their currencies, he said.

The twice-yearly currency report was mandated by Congress in 1988, when the trade imbalance with Japan was the main concern. More recently, it has become a source of friction with China.

Even the critique of Japan in the latest report may have been intended as a message for Beijing.

"The criticism (of Japan) is accurate but it's 20 years old and resuscitated as cover," said Derek Scissors, a research fellow at the conservative Heritage Foundation in Washington.

"It's so they don't appear to be picking on China."

If Treasury determines a country is manipulating its currency to gain a trade advantage, it can call in the International Monetary Fund to press for realignment.

Some US lawmakers, businesses and unions want Washington to label China a manipulator, but Treasury declined to do so yet again in its latest report. It did, however, mention China twice as many times as it referred to Japan.

While there may be politics at play in the currency report, a closer look at trading in China's yuan suggests Beijing may have earned its reprieve this time.

ENDING ON A HIGH NOTE

The United States has long argued that a stronger yuan is in China's best interest because it can help ease inflationary pressures and lift domestic spending power.

China's central bank keeps the currency on a tight leash by setting a daily midpoint and then allowing only a one-half percent move on either side.

In the first half of December, the yuan traded limit-down nearly every day, partly due to demand for dollars but also reflecting increasing concern that China's economy will falter as export demand slows and its housing market declines.

The People's Bank of China intervened on December 16 and again on December 30 to prop up the yuan, traders told Reuters. That left the yuan up 4.7 percent against the US dollar in 2011, even though China's exports have cooled over the past six months and will probably slow even more in 2012.

The yuan's performance makes it more difficult for the United States to claim China is intentionally weakening its currency to gain a trade advantage.

"The argument gets weaker when China is moving toward a smaller trade surplus," said Carnegie's Huang, who is also a former World Bank country director for China.

EYEING OIL

Why would China favor a stronger currency now? It helps to defuse political tension with the United States and discourage traders from assuming the yuan is a safe one-way bet, and it can also neutralize imported inflation.

China's annual inflation rate has dropped dramatically since it hit a three-year peak of 6.5 percent in July, but it is still above the government's target of 4 percent.

With oil trading around $100 per barrel even though the world economy looks shaky, it would not take much of a shock to push prices back up to the $115 level seen in May, which threatened to choke off the global recovery.

This complicates currency policy across Asia.

Aside from the yuan and yen, most Asian currencies weakened in 2011. South Korea, Indonesia and India stepped in to try to cap currency volatility, but countries across the region seemed content to allow a gradual decline.

That may change in 2012.

In Singapore, considered as a regional bellwether as the city state is closely tied to the global economy, annual inflation spiked unexpectedly to 5.7 percent in November.

Trade-dependent Singapore uses the exchange rate as its primary policy tool, and has slowed the pace of appreciation to try to support growth. But that leaves it vulnerable to imported inflation.

In South Korea, a measure of factory activity fell to its lowest in nearly three years in December, figures on Monday showed, yet its inflation rate came in above the central bank's target. The Bank of Korea said last week that fighting inflation would remain the top policy priority in 2012.

This suggests Seoul may rethink the wisdom of allowing its won to weaken.

"We believe the government's tolerance for a weak won is waning," Barclays economist Wai Ho Leong wrote in a note to clients on December 30.

 

[eastwatch]

^ Not sure about the latter but it seems the devaluation of taka is one of the
prime reasons behind the record influx. Sources predict that it's gonna end up
leveling at 95tk/dollar. Good news for you guys, bad news for us domestic chaps.

Surprisingly there seems to be a global move on weakening of domestic
currencies against dollar. Which includes Indonesia, Singapore, India,
south Korea.

Still none of the aforemention countries are facing double digit
inflation like us.

An interesting article, published today, let me share-----

Yes, it is a knowledgeable article on currency matters. Seems every important currency is getting weak against dollar except Japanese yen. Japanese companies and individuals have stacked a few trillion dollars in the USA about 10 years ago. A strong yen is the only way to keep this staggering sum of dollars in the USA. This is why USA loses sleep at the thought of a weak yen.

A weak Yen will initiate a flow of dollars from USA to Japan, where the businesses are struggling to survive. Not only the dollars held by the Japanese, but also those held by foreigners will also flow into Japan. With all its present economic wooes Japan is regarded as the safe haven for dollar assets. A much awaited weaker Yen will boost the share market in Japan. But, it will have an adverse effect in the USA.

Japan is unable to force its way through USA objections, and intervene in the currency market to make Yen weaker.

By the way, could it be a reason for Taka devaluation that 1) the GoB is spending too much of its foreign currency to buy military hardwares, and 2) that the GoB has borrowed about Tk. 42,000 from the local Banks? Could it be that these actions have raised the demand for dollars and thus raised its value against Taka. I think, this devaluation will create a kind of inflation in the country. Hope, it will not be a run away inflation whereby dollar is traded at Tk.1,000. Then, inflation will itself create more inflation.

 

[integra]

By the way, could it be a reason for Taka devaluation that 1) the GoB is spending too much of its foreign currency to buy military hardwares, and 2) that the GoB has borrowed about Tk. 42,000 from the local Banks? Could it be that these actions have raised the demand for dollars and thus raised its value against Taka. I think, this devaluation will create a kind of inflation in the country. Hope, it will not be a run away inflation whereby dollar is traded at Tk.1,000. Then, inflation will itself create more inflation.

Millitary spending is not quite the problem right now, rather the import
of fuel (for costly power generation) has doubled. It's said that Tk 9000 crore
will be needed just for subsidy even after the rise in fuel price. One more thing
that has become alarming is that the demand for fuel is increasing exponentialy.
Seems like the short term power generation strategy has backfired quite
haphazardly.

Obvilously the only solution is to start extracting local coal reserves but then there
are crybabies like Anu Muhammed in afterburner. Power Generation by the
private sectors shall become a real headache in the coming years. The situation
has become such that even if BNP forms a Gov. next time it'll be hard for them
to take back the control of power sector.

Exporters usually does not encourage weakening of domestic currencies so that
might be a catalyst in this worsening scenerio.

 

[Generally Khan]

The problem with Bangladesh, or even India and Pakistan is the same i.e. we buy our oil from abroad and pay for it with dollars that we dont have. On top of that, our governments have some sort of policy in place to shield the economy and people from high oil prices which fuels artificial consumption and adds more demand which the government now has to pay for. This forms a vicious cycle. The central banks have no choice but to increase interest rates fueling inflation which depreciates currency making export markets uncertain. No one in sub-continent has tight control over currency devaluation like China but that's because of strong Chinese export demand.