There is no visible logic to allow Banks to make profit by buying and selling FE. They should be happy with bank charges of remittances. Bangladesh should go back to wage earner scheme introduce by Bangabandhu government and give back the legitimate profit of sale to wage earners for the hard earned foreign currency and improve remittance through banking channel and sell the FE to importer and banks as per choice of wage earners.

1. https://dailyasianage.com/news/186464/re-introduction-of-wage-earners-scheme
EDEN BUILDING TO STOCK EXCHANGE
Published: 12:16 AM, 14 July 2019
Re-introduction of Wage Earners' scheme
M S Siddiqui
Bangladesh is a country that is running in trade deficit, i.e, the import payment is higher than
export receipt. The remittance of wage earners plays an important role to cover up the gap.
Though it is difficult to know an accurate figure of remittance that is sent through informal
channels, previous research shows that informal remittance to developing countries was 25% to
125% of official remittances. It indicates that the developing countries like Bangladesh are deprived
of their hard earned foreign currency due to remittance through informal channels.
There are two regulatory instruments that apply to remittance. These are Foreign Exchange
regulation Act, 1947 and Money Laundering Prevention Act, 2002. The FE act provisions authorized
dealers in foreign exchange. Foreign Exchange Regulation Act, 1947 is an all-encompassing
legislation that have control over all kinds of foreign exchange transaction. This act does not have
any specific section on migrant remittance.
Under the broad umbrella of the act, the Foreign Exchange Policy Department has framed
guidelines to manage remittance movement. The guidelines are very restrict on buying, borrowing,
selling, lending, conversion of FE etc. by any person other than an authorized dealer.
The act imposes jail sentence and/or penalty of certain amount decided by court as punishment for
violation of the act. Despite the strict FE law, the informal channels of remittance are different and
beyond the control of the central Bank due to practical reasons. The law is not suitable for present
day of global and local banking and financial system.
Formal remittances refer to those remittances which enter into the economy through legitimate
channels such as banks, exchange houses, money gram, western union etc. On the other hand an
informal channel includes those money transfers which occur through private, unrecorded and
illegitimate channels.
These informal channels are often termed as hundi or something else though the basic
characteristic of such informal channels of remittance are more or less same. The informal channel
also includes remittance carried by friends or relatives or the migrant himself or herself.
A study on Bangladesh wage earners in middle-East observed that 46% of the total volume of
remittance has been channeled through official sources, around 40% through hundi, 4.61% through
friends and relatives, and about 8 % of the total was hand carried by migrant workers themselves
when they visited home. Others include sell of work visas. Migrants sent work visa from his country
of destination. Their families either sent another member abroad with that visa, or sold it for cash.

2. Remittances by workers from abroad play a significant role in minimizing dependence on aid for
foreign exchange. The scheme aimed at conversion of remittances of the Bangladeshi workers at
exchange rates corresponding approximately to the open market rate. This scheme was known as
Wage Earners' Scheme (WES) was introduced in 1974 to provide incentives to the Bangladeshi
nationals working abroad in remitting their earnings to Bangladesh through official channel.
It got prominence when the allocation of foreign exchange for importers at official rate since newly
independent country has shortage of foreign currency.
Importers facing shortage of foreign exchange allocations tended to buy foreign exchange at rates
higher than the official rate from the wage earners' market, which was popularly known as the
secondary foreign exchange market. Remittances treated as earnings through 'manpower export'
have become the largest foreign exchange earner among the items in the balance of payment.
The FE earners were beneficiary of the open market price of foreign currency and remittance was
beneficial for the country during the crisis period immediately after independence. The FE earners
were the beneficiary of the secondary market and also supporting the nation in balance of
payment.
But the secondary FE market has been stopped and banks are authorized to purchase foreign
currency. The reason for such decision is not known why Bangladesh bank has taken such a major
policy decision.
Until 2003, the exchange rate was determined by Bangladesh Bank. Bangladesh has taken another
policy decision to go for floating exchange rate regime since 2003. IMF adviced the government to
open the FE market to improve the remittance through official channel.
So the exchange rate is determined by the interaction of demand of supply of foreign currency. In
this new system, the nominal exchange rate is set by the market forces but keeps discretion for the
central bank to intervene in the foreign exchange market to keep the rate within certain limit of
appreciation or depreciation. This is known as 'managed float' system.
There are several reasons behind the popularity of such informal channel. First of all the hosting
countries government policies and regulations, such as foreign exchange control, monetary policy,
high tariffs and taxes, bureaucratic licensing process for financial institutions etc.
The strict foreign exchange regulation of Bangladesh is mainly responsible for such informal
remittance. There are lots of restrictions for outflow of foreign exchange. So, citizens need foreign
currency to spent abroad they are not getting the currency in formal way.
They have to depend on Hundiwala for foreign currency. For example the cost of medical treatment
in other country is very high and payment should be in foreign currency. Though the cost is very
high, due to regulations the patient would get limited amount of foreign currency. So, they buy
foreign currency from other illegal sources.
Bangladesh has an informal economy and source of income is bribe, kick-back from government
contracts, smuggling and informal business. The strict and non-friendly regulatory and taxation
system encourage the businesses use to remain in informal sector although they are in fair business
but unable to bring the income into formal sector.

3. The black-money holders transfer their money to safe places in other countries. Sometime the black
money holders use international trade to transfer or legalize the black money. They are also in need
of money for settlement in other country, education of children and medical expenses.
Therefore, the demand of foreign exchange to transfer to other country is very high. These rich
people of different professions are buyer of foreign currency from wage earners through
Hundiwala. Hundiwala transfer the foreign currency to account of Bangladeshi corrupt persons or
their children / relatives. These black money holders are promoter and protector of hundi system
of FE transactions.
These transfer of FE is highly trust based, informal remittance systems have a long history of being
reliable, inexpensive, speedy, accessible and a convenient way of transferring funds in Asia, where
they are thought to have originated, and many other parts of the world following waves of
immigration, using minimal or no documentary requirements. The element of trust is a defining
characteristic of most informal remittance systems.
On the other hand the currency in informal FE market is relative cheaper in informal market
organized by Hundiwala. It is believed and in some cases studies showed that informal channels of
remittance are even cheaper than that of formal ones. The absolute monetary transaction cost of
remitting money across borders using formal channels is estimated at approximately 13 percent of
the remittance value.
On the other hand if a person chooses to remit by using informal channel such as Hundiwala, the
cost is estimated to be less than 2 percent of the value of principal. There are 7 other studies in
relation of this. For example, one researcher reports the average cost of remitting at 3-5 percent
globally, although they can be higher in specific cases. Some other reported of the costs from 1 to 5
percent.
Many studies find that costs of informal channels in Bangladesh are about 45 percent of formal
costs. They found one important factor causing migrants to remit through informal channels is the
high cost of transferring funds through banks and transfer agencies.
The costs and time of receiving remittance through official and hundi channels were made the
hundi lucrative calculated. For official channel this included service charge, speed money,
conveyance and other costs. The average cost per official transaction was found to be Tk.136.50.
For hundi, at the receiving end, the costs involved phone charges, conveyance and remittance lost.
Under official transaction, the time required for receiving cash after depositing the draft in the bank
was 12.83 days, while for hundi, the average time per transaction following receipt of information
was 3 days.
With the closure of Wage Earner Scheme (WES), banks are now enjoying "monopoly and huge
profit" without any efforts what so ever.
At present the profit of bank is around Tk1.00 to Tk2.00 per Dollar. This is the legitimate income of
wage earners taken over by Banks. The remitters started look for alternate route of remittance for
better price of their hard earn Foreign currency and hundi came prominently in to the FE
transaction.

4. There is no visible logic to allow Banks to make profit by buying and selling FE. They should be
happy with bank charges of remittances. Bangladesh should go back to wage earner scheme
introduce by Bangabandhu government and give back the legitimate profit of sale to wage earners
for the hard earned foreign currency and improve remittance through banking channel and sell the
FE to importer and banks as per choice of wage earners.
The wage earner will earn more Taka from official channel than selling to risky informal market.
The FE will be costlier for corrupt persons to siphon off from Bangladesh.
The corrupt persons of different professions and banks are beneficiaries of closure of WES and
operation of hundi system but victims are the poor wage earners workers in ME and other
countries.
The writer is a legal economist.
Email: mssiddiqui2035@gmail.com