The Other Side of the Remittance Story

Bangladesh’s remittance inflows touched a nine-month high of USD 3.17 billion in January, marking a 45 percent increase compared to the same month last year.

For the first seven months of the current fiscal year, remittance receipts stood at USD 19.44 billion, up by nearly 22 percent year-on-year.

In 2025, overseas Bangladeshis sent home a record USD 32.81 billion; while gross foreign exchange reserves rose to USD 33.18 billion on January 29, 2026, up from around USD 25.31 billion a year earlier. The Bangladesh Bank has since shifted from defending the currency to purchasing dollars from the interbank market, absorbing nearly USD 4 billion so far this fiscal year.

At first glance, the story appears straightforward: a strong rebound in remittance inflows has stabilized the foreign exchange market, eased pressure on the taka, and rebuilt reserves. Seasonal factors such as Ramadan and Eid-ul-Fitr traditionally lead to higher transfers, while political uncertainty ahead of national elections often encourages expatriates to send additional funds to support families.

Bankers also point to greater exchange rate stability as an incentive for remitters to use formal channels.

Yet, beneath these comforting explanations lies a more complex-and more uncomfortable-truth about the structure of Bangladesh’s foreign exchange market.

The surge in remittances since August 2024 coincides with the fall of the previous government and a noticeable cooling of the shadow foreign exchange market. This is not a coincidence. Bangladesh’s remittance dynamics have long been entangled with the unofficial market, commonly referred to as hundi.

The relationship between the two is paradoxical: when demand pressure intensifies in the official foreign exchange market and administrative controls tighten, remittances through banks tend to fall; when unofficial demand weakens and price signals normalize, official remittance inflows surge.

The current boom is less a miracle of policy brilliance and more a reflection of temporarily suppressed shadow-market demand.

To understand this paradox, one should revisit late 2022, when the Taka entered a phase of sharp depreciation. The central bank responded with a series of administrative measures: informal exchange-rate caps set through bankers’ associations, heightened scrutiny of import prices, and public declarations about detecting mis-invoicing, and so on.

While these steps were intended to protect reserves and stabilize the currency, their unintended consequence was a dramatic decline in wage remittances through official channels. As the gap widened between the official exchange rate and the rate available in the unofficial market, rational remitters simply followed the price signal.

Remittances are not driven by patriotism alone; they are financial transactions guided by incentives. When a migrant worker earns a dollar abroad, that dollar is mobile. If the banking channel offers less value than hundi, remitters switch channels -- even if doing so carries legal or moral risks.

The more aggressively the authorities attempted to control the official market without addressing underlying demand, the more oxygen they inadvertently supplied to the unofficial one.

The events following August 2024 demonstrate the reverse dynamic.

With reports of large-scale capital siphoning subsiding, political uncertainty easing, and enforcement against informal networks strengthening, demands in the shadow market weakened. At the same time, the official exchange rate became more credible and predictable.

As a result, the incentive gap narrowed, and remittances flowed back into the banking system in force. The floodgates opened not because remitters suddenly became more compliant, but because the market once again aligned with economic logic. This raises a critical question: are the current remittance inflows sustainable?

The honest answer is no-at least not under the existing framework. Seasonal factors will fade after Ramadan and Eid. Political motivations tied to elections are temporary. What remains is the structural tension between official controls and unofficial demand. Unless this tension is resolved, today’s inflows risk becoming tomorrow’s disappointment.

The core issue lies on the outflow side of the foreign exchange market. Bangladesh’s policy debate has traditionally focused on how to attract dollars in-through cash incentives, or moral suasion- while paying far less attention to how dollars leave the system.

When official outflows are constrained, delayed, or selectively rationed, demand does not disappear; it simply migrates. Importers, investors, travelers, students, and even individuals seeking portfolio diversification find alternative routes. These routes feed the shadow market, which then competes directly with banks for remittance dollars.

This is why the paradox persists: tightening official channels to conserve reserves often reduces official inflows. The solution, counterintuitive as it may sound, lies in making official outflows smoother, more predictable, and more automatic. A foreign exchange market cannot function sustainably if inflows are liberalized while outflows remain administratively bottled.

Automatic, rule-based access to foreign exchange for legitimate current and limited capital account transactions is essential. When businesses know that import payments, profit repatriation, or service fees will be processed without arbitrary delays, their incentive to seek hundi diminishes. When individuals trust that outward remittances for education, medical treatment, or personal needs will be approved transparently, demand shifts back to banks. Suppressing the shadow market is not achieved by policing alone; it is achieved by rendering it unnecessary.

An often-overlooked dimension of this debate concerns non-resident Bangladeshis (NRBs). While policy discussions frequently emphasize attracting NRB funds into the country, far less attention is paid to their exit options. Many NRBs maintain assets in Bangladesh-bank deposits, real estate, business stakes-yet face significant hurdles in repatriating funds. This asymmetry undermines confidence. Money, once brought in, becomes perceived as semi-trapped. Rational actors respond by limiting formal inflows or by using informal channels that preserve flexibility.

Allowing NRBs to take money back out of Bangladesh within a clearly defined limit would paradoxically encourage more inflows. Capital that knows it can exit is more willing to enter. A transparent, quota-based framework for outward remittances by NRBs-subject to documentation and reporting-would reduce reliance on informal mechanisms and strengthen the integrity of the official market. This is not capital flight; it is capital circulation.

The recent stabilization of the exchange rate and the Bangladesh Bank’s renewed dollar purchases from the interbank market offer an opportunity to rethink policy direction. Building reserves through market purchases is preferable to administrative compression, but reserve accumulation should not come at the cost of distorting incentives. If banks are encouraged to surrender dollars while importers and investors face uncertainty, pressure will re-emerge elsewhere in the system.

The lesson from the past three years is clear. Foreign exchange markets are ecosystems, not pipelines. Intervening at one point -- whether by capping prices, restricting outflows, or moralizing remitters -- inevitably affects behavior elsewhere.

Remittance inflows are not merely a function of diaspora goodwill or seasonal rituals; they are the mirror image of confidence in the domestic market’s fairness and functionality.

Bangladesh’s current remittance boom should therefore be treated as a window, not a verdict. It provides breathing space to move from discretionary controls toward rule-based management. It offers a chance to align official and unofficial prices permanently rather than episodically. And it underscores a fundamental truth: the more demand is forced out of the official market; the less supply will flow into it.

Sustainable remittance growth will not be achieved by chasing dollars at the border. It will be achieved by ensuring that every legitimate dollar entering the system can also leave it smoothly when economic logic demands. Until that balance is restored, the paradox will remain-and so will the risk that today’s flood turns into tomorrow’s drought.

Tashzid Reza works in a trade finance company operating as a liaison office in Bangladesh.