ONE may find it hard to even guess under what valid ground the Policy Analysis Unit (PAU) of the Bangladesh Bank (BB) could recommend in a review for legalising the illegal hundi business, forever found linked with smuggling and a host of other illegal activities. Hundi dealers will come to the surface only if they can secure from legal activities as much return as they earn now from their investment or if they can promote their traditional activities hiding these under a legal cover.
A recent report in this paper mentioned the particular PAU review as suggesting that several strategies can be adopted for implementing the controversial recommendation -- such as formalising the informal howladers of the hundi business. They may be permitted, the review says, to collect remittances abroad and disburse the equivalent amount of domestic currency instantly to recipients in the home country subject to the condition that the foreign currency collected will be declared within a period, to be specified by the regulatory authority, which is the BB herself.
May one ask: what is the equivalent amount of domestic currency for a dollar under the current floating exchange rate? The BB's policy analysts will say it was Tk 57 in 1999 and it is Tk 70 now. Evidently, there is no fixed equivalence of any two currencies under the present system of fluctuating exchange rate. Do the BB's policy analysts still think while doing policy analyses and framing recommendations in terms of the fixed exchange rate, as their use of the word -- equivalent, in their recommendation in question invariably suggests? The pertinent policy review says quoting two studies conducted by the International Monetary Fund (IMF) and the International Labour Organisation (ILO) that between 40 per cent and 49 per cent of Bangladeshi expatriate workers' remittances are transferred to the country through hundi. Well, that may be a measure of the level of smuggling, which some people lately call informal trade as if to confer some respectability to the illegal activities, which manifestly regard the state as a non-entity or, at best, as a useless entity that should be starved of revenue to ultimately become extinct. It has been supposed in the said PAU review that the proposed legalisation of what has been so far illegal will help augment the nation's foreign currency reserve.
Let us accept that the nation's foreign currency reserve, as the BB's present record of having around $3.4 billion as such reserve confirms, is scarce. But let the BB also accept that when too many players get involved in buying and selling of a scarce commodity, its price goes up in the rat race to acquire and sell it more for more profit. Manipulations -- like withholding or slowing down sale to squeeze supply for a day or two for driving its price up to earn some extra profit from the sale of the procured stock -- the oft mentioned vice of business called hoarding, may also take place. What can be its effects?
The same report in this paper said the share of the nationalised commercial banks (NCBs) in handling inward remittances has declined in the recent years while that of the private commercial banks (PCBs) has gone up significantly. The PAU's review said NCBs tend to offer lower exchange rate for inward remittances than the PCBs. Guess, what has caused the value of the local currency to plummet. Hasn't the dwindled value of taka driven up the commodity prices in the domestic market -- now largely integrated with the world market through the mechanisms of import and export than anytime in the past, which are causing public uproar and frustration within the country?
The BB is basically the custodian of foreign currency and is the guardian of local currency. When the value of taka dwindles, because of its any policy lapse or absence of an appropriate policy, it seems as if it is the guardian of foreign currency and custodian of local currency. No doubt, raising foreign currency reserve is highly desirable in weak economies. But the best, obviously the most effective and enduring, economic security guarantee is given by an abundant production of competitive goods of high value having a great demand worldwide. Since, as its guardian, the retaining value of taka is the central bank's main job, the BB should endeavour hard to retrieve the lost value of the local currency by proving herself efficient as an architect of workable concepts to promote increased productivity within the economy. Netting more remittances without a concurrent increase in domestic productivity, which will inevitably result in chronic revenue shortfall, will convert ours into a pariah economy or force the state to impose tax even on such remittances at some stage to salvage itself from an aggravating financial crisis, the symptom of which is perhaps already evident from its growing dependence on domestic bank borrowings.
Policy makers' romance with new ideas can be disastrous for a nation if their possible impacts are not thoroughly assessed prior to putting them into effect. The inverted-pyramid investment scheme of Macedonia in the mid-1990s, which was built on the queer idea of paying more and more interest rate on saving to draw more and more in savings with banks for investment without regard for the accumulating burden of repayment of deposits along with interest, set off a grave economic crisis in that country to create a graver political crisis, which eventually spread like wild fire across the Balkans. Cambodia's Khieu Samphan -- the doctor in economics from the Paris University, identified currency as the prime tool of exploitation in the modern age. The communist or confused leader on being in power, not only created killing-fields to exterminate his own countrymen who he thought non-conformists but also disbanded the local currency reverting his nation to the primitive age of the barter system of exchanging goods for goods.
Hundi must not be legalised recognising that those involved in it may abuse the official cover to promote their nefarious activities or cause the value of taka to further dwindle by buying foreign currencies at higher prices and then selling them at illogically high prices after retaining them for some time. We cannot afford to follow the example of any country--Arab Emirates or whatever, that is said to have legalised it. They pump out oil, sell it at $75 a barrel and can afford the luxury of experimenting whatever system they like. We simply cannot afford to do so.
It should be also remembered that listening in every case to the IMF or the World Bank, which insists on transparency, accountability and creating a level playing field for everyone but pontificates sitting on the uneven hill-top and seeks to enjoy immunity from local laws to avoid accountability, may prove dangerous for the country.