The New Nation - Internet Edition

Staff Reporter

Rather than profiting, Bangladesh is now trying to protect the principal amount of its investment in the plummeting currency markets of the developed world by shifting its foreign exchange to safer places.

Bangladesh has foreign currencies, amounting over five billion US dollar, invested in the money markets of UK and US which, the central bank officials say, are risk free.

According to a source in the Bangladesh Bank, the country has profited slightly for its investment in the US dollar, as the currency is becoming stronger than the euro and the pound sterling despite sliding of the US economy.

The central bank has invested 45 percent of its forex holdings in the US dollar, which was 26 percent a couple of months ago, he said.

A deputy governor of Bangladesh Bank yesterday said that its foreign currency reserves with the banks, mostly central banks, in deferent country's are "absolutely protected" despite overwhelming financial crisis there.

The central bank, however, is waiting for a suitable timing to reinvest the currency reserves, which it earlier diverted to safe deposits in the wake of global financial crisis.

"We'll have to do it… we'll do it as soon as we'll feel confident," Deputy Governor Ziaul Hassan Siddiqui told a press briefing at Bangladesh Bank yesterday.

He said the international money and capital markets bounced back only for last two days, which is not enough to consider reinvestment of the fund to get better returns. "At this moment, we're trying to protect our principal amount," he added, replying to a question.

The central bank invests the entire reserve of foreign currencies, which stands at US$ 5.6 billion as of yesterday, in the international money market at market rates.

The BB does not invest in risky ventures such as Lehman Brothers. BB invests in zero-risk US government treasury bonds.

But in the wake of global financial crisis, it started pulling the investments from the banks and financial institutions of different countries to the safe places of central banks of the respective countries, said the deputy governor.

He added that the rate of return on investment in the central banks would be 2 percent (average) lower than the market rates.

Asked whether Bangladesh Bank would go for rate cuts as many countries had done to face the crisis, Siddiqui said the ground reality was that many commercial banks went to the Bangladesh Bank on yesterday to deposit money. "It reflects that there is excess liquidity in the banking system."

Replying to another question, he said Bangladesh Bank would still maintain the cautious stance to avert any emerging situation although all the money has already been protected.

"There is no reason of adverse impact on the country's financial sector (due to the global financial crisis)," he said, mentioning the steps the central bank had taken long back.

Elaborating, he said the central bank has pulled the forex to safer places - central banks of different countries, while commercial banks have been asked to take necessary measures to protect their funds held outside the country.

Meanwhile, the countries severely affected by the financial crisis also assured that they would, by any means and whatever may be the cases, protect the deposits with banks and financial institutions of their countries.

"We're now in a position that we've bare, bare minimum risk even if the countries do not support us," said the deputy governor.

He rejected any possibility of affecting the country's capital market having foreign portfolio investment of 2.48 percent of the total securities. "Our market will not be affected even if the entire foreign investment (now in the country) goes away," he said.

Siddiqui, however, said he does not think that the investment would go away as Bangladesh's financial sector is much less risky than anywhere else.