Cash held outside the banking system in Bangladesh rose significantly in May, driven by Eid-related spending and deepening distrust in banks.
According to Bangladesh Bank data, currency outside banks increased to Tk聽2,93,778 crore in May, up from Tk聽2,77,366 crore in April.
The spike coincided with Eid-ul-Azha, celebrated on June 7, as people withdrew large sums to purchase sacrificial animals, clothes, and other essentials.
A similar pattern was seen in March, when Eid-ul-Fitr fell on March 31, pushing currency outside banks to Tk聽2,96,431 crore 鈥� the highest in recent months.
However, this seasonal trend is now being compounded by structural problems in the banking sector.
Depositors are increasingly nervous following the central bank鈥檚 recent move to merge weak commercial banks, leading to further withdrawals.
Several banks have failed to meet withdrawal requests on time, intensifying the crisis of confidence.
The distrust has been fueled as various corruption and loan scandals were surfaced after the central bank had begun revealing the actual financial condition of banks following the ouster of authoritarian Awami League regime.
Large politically connected borrowers had enjoyed undue privileges and regulatory leniency during the AL rule.
The non-performing loan figure has nearly doubled in a year, climbing to Tk聽4.20 lakh crore in March 2025 from Tk聽1.82 lakh crore in March 2024 - exposing the gravity of the problem.
Therefore, many high-net-worth individuals have shifted their funds from banks to government treasury bills, which are currently offering more attractive and secure returns.
Meanwhile, inflationary pressure has also kept people dependent on cash.
Though inflation eased to 8.48 per cent in June, falling below 9 per cent for the first time in over two years, high living costs continue to prompt many to rely on cash for daily necessities rather than keeping money in banks.
Despite rising liquidity outside banks, deposit growth has remained sluggish.
Excluding interbank and government accounts, total bank deposits rose just 7.73 per cent year-on-year to Tk聽18,32,065 crore in May from Tk聽17,00,608 crore a year earlier 鈥� far below the average interest rate during most period of the past year.
Economists said that the rising volume of cash outside the formal banking system undermines key aspects of the economy.
It weakens monetary policy transmission, reduces loanable funds for investment, and slows financial inclusion. More worryingly, it may fuel informal and undocumented economic activities, complicating tax administration and reducing transparency.
Therefore, financial experts emphasized that the country鈥檚 intention should be to develop a cashless money transaction system.
Cashless transactions are not only a parameter of development but also ensure transparency in the financial system, they added.
