In a move aimed at alleviating exporters’ immediate cash flow challenges, Bangladesh Bank has directed all commercial banks to offer a foreign currency swap facility. This will allow exporters to temporarily exchange their foreign currency holdings for local currency to meet urgent financial needs, with the option to settle the transaction within 30 days.
The directive, issued today (3 November) by the Foreign Exchange Policy Department of Bangladesh Bank, outlines the operational guidelines for the new facility. Exporters will be able to swap foreign currency retained in their Exporters’ Retention Quota (ERQ) accounts for Bangladeshi Taka, without the need to convert it permanently.
30-Day Settlement Period
Under this system, the maximum tenor of the swap is set at 30 days. The facility will be available against exporters’ pool accounts or ERQ accounts, and all transactions must be settled within the prescribed time frame. The “swap point” or rate at which the currencies will be exchanged will be determined based on the interest rate or profit rate difference between the two currencies—the Taka and the foreign currency (such as US dollars or euros).
A Temporary Exchange, Not a Loan
Bangladesh Bank has clarified that the new swap facility is not a loan or a financing tool. Instead, it is a temporary exchange agreement between the bank and the exporter. As such, banks must ensure robust risk management, liquidity controls, and thorough internal audits when processing these transactions.
Exporters will also be required to formally acknowledge the terms of the agreement, the implications of the exchange rate, and any associated risks before entering into the swap.
Funds for Export Operations Only
The Taka obtained through this facility is strictly for export-related business purposes, such as covering production costs, transportation, or purchasing raw materials. The central bank has made it clear that the funds cannot be used for speculative transactions or investments.
Boost to Exporters’ Cash Flow
Officials at Bangladesh Bank believe this initiative will provide exporters with a vital boost in cash flow, allowing them to avoid the need to prematurely sell their foreign currency holdings. This will help reduce pressure on the local dollar market and enhance the efficiency with which exporters can utilise their foreign exchange earnings.
The central bank has also stipulated that all swap transactions must be properly documented and reported to Bangladesh Bank on a regular basis, ensuring transparency and accountability in the process.
In summary, this new foreign currency swap facility is designed to give exporters greater financial flexibility, helping them manage cash flow more effectively while supporting the stability of Bangladesh’s foreign exchange market.