A few months back, an elderly former school teacher in Dhaka was detained and later arrested at the Hazrat Shahjalal International Airport for carrying $30,000 in cash, before boarding a flight to the United States.
According to the Foreign Exchange Regulation Act, a Bangladeshi citizen can officially carry a maximum of $10,000 in cash while travelling abroad. In a calendar year, they are authorised to procure a maximum of $12,000 from authorised dealers.
Although she was likely aware of this policy, her young daughter, who lives in the US, had sent her an urgent plea for the money, and she was not aware of other modes of transferring the money quickly beyond carrying it in person.
She is currently being tried under the Money Laundering Prevention Act and is out on bail.
Authorities in the past have been fairly lax about strictly imposing the dollar limit, as long as the traveller hadn't breached the limit by an outrageous amount. However, given the current foreign exchange reserve crisis in the country, they have strongly shifted gears, leaving many people surprised and confused.
Many travellers, especially those seeking healthcare services abroad, feel the limit of carrying USD is insufficient. While this may be true at an individual level, and it is hard not to sympathise with the predicament of the elderly teacher, at a collective level the authorities have very little choice but to strictly impose these provisions of the Foreign Exchange Regulation Act, given the precarious situation of the Bangladesh economy, say economists.
The nervousness around the dollar
On September 4, Bangladesh Bank sent 'show cause' notices to 26 domestic and international banks as an internal investigation by BB found that these banks together issued more dollars to 71 credit cards than the predetermined limit.
From Bangladesh Customs to the central bank, every organisation associated with foreign currency management appears to be extra vigilant in preventing any unnecessary release of the greenback. Their apprehension is somewhat expected.
In August 2022, Bangladesh Bank's foreign reserve fell to $38.51 billion in August 2022, a year-on-year decrease of about 20%. Bangladesh, being a net-food and fuel importing country, has an active interest in maintaining a sizable foreign exchange reserve to be able to pay for these imports.
On top of that, Bangladesh's external public debt is also rising and is likely to rise to 14.97% of GDP by FY2025-26 as the government begins its debt-servicing for many of the megaprojects nearing completion.
"We are observing pressure in international credit card transactions because of the recent extraordinary circumstances. Previously, ordinary citizens used to purchase dollars for travelling from the kerb market at a reasonable price. But the recent crisis shot up the price of dollars beyond the Tk120 mark. This is why people are relying on international credit cards or banking channels to procure dollars when travelling abroad," said Dr Ahsan Mansur, the Executive Director of Policy Research Institute.
Dr Mansur believed that the central bank had to adopt austerity measures given the pressure on its foreign reserves.
Do such restrictions exist everywhere?
Most Western developed economies have relatively open capital and foreign exchange markets. Their economies are diversified and attract substantial amounts of foreign direct investment (FDI). Consequently, developed economies can also boast large foreign exchange reserves and are not usually at risk of not being able to repay their debts. This is why they can afford to have a relatively free flow of foreign currency and capital, even during periods of economic recession.
Contrarily, in an investment-strapped country like Bangladesh, private firms - from exporters to domestic producers - have to rely on foreign preferential treatment or subsidies. Although LDC graduation was supposed to bring about increased FDI to Bangladesh, FDI inflow still accounts for only 0.58% of the GDP.
Keeping these solemn facts in the background, it makes sense for the central bank to somewhat micromanage its foreign exchange market. On the one hand, Bangladesh Bank has always tried to maintain a managed float exchange rate regime. On the other hand, it imposed other supplementary regulations to prevent the free flow of dollars, like maintaining a dollar ceiling.
That being said, the dollar ceiling was raised a long time ago in 2014 from $5000 to $12,000, as it was deemed too stringent and insufficient for foreign travel, especially with increasing connectivity of Bangladesh citizens with the rest of the world.
Interestingly, other South Asia countries and Bangladesh's regional neighbours even have lower ceilings on dollar expenses. For instance, both Indian and Pakistani citizens can avail of foreign exchange for up to $10,000 for tourism or private travel. The limit is only $5,000 in Myanmar.
Should the dollar ceiling be raised?
While it is understood that Bangladesh Bank needs to impose a dollar ceiling on travelling abroad, many presume or at least speculate that the amount is not sufficient and the ceiling should be raised.
Rizwan Rahman, President of the Dhaka Chamber of Commerce and Industries, believes that the $12,000 limit is "farcical".
"If the central bank imposes a limit on how much a citizen can carry, how are they supposed to invest? If they want to prevent money-laundering there are other ways to do it like introducing policies specifically addressing money laundering. Imposing a limit on dollars only curtails investment growth in the country and hurts the honest tax-paying citizens of the country," said Rizwan.
However, Bangladeshi investors can indeed invest abroad. For instance, according to a January declaration from the Ministry of Finance, Bangladeshi investors were allowed to invest 20 percent of their average exports earnings from the past five years or 25 percent of their net assets abroad. It is worth mentioning that only export-oriented firms have been given this opportunity.
Some are worried about how this ceiling may affect expenses on higher education as well as expenses on health care. Thankfully, both Bangladesh and India have special provisions in place that exclude education expenses and medical treatment from the predetermined ceiling.
In Bangladesh, prior permission from the central bank is not required for releasing foreign exchange for Bangladeshi students going abroad for education purposes.
In the case of medical treatment, authorised dealers are allowed to release an additional $10,000 more on top of the $12,000 given that the additional expense is backed by recommendations from Medical Boards or the medical specialists of the foreign hospital.
Under extraordinary circumstances, where Bangladeshi citizens require dollars in excess of the $22,000 already allowed by the Bangladesh Bank, they simply need to submit a formal request to the bank along with satisfactory documentation.
When asked about raising the ceiling Dr Farashuddin, the former Governor of Bangladesh Bank, said, "The dollar ceiling has already been raised from $5,000 to $12,000 just a few years earlier and it was not done whimsically. A lot of research went into setting the $12,000 ceiling that has been put in place and I believe there is no need to raise the ceiling now."
According to Dr Mansur, the $12,000 ceiling is sufficient to cover travel expenses for one individual in a calendar year and there is no need to raise it now, especially when the foreign exchange reserve is already depleting because of high import payments.