Dhaka:Bangladesh Bank (BB) has issued a comprehensive circular consolidating foreign exchange management and operations rules. The new circular allows Authorised Dealer (AD) banks to offer commodity price hedging facilities to eligible importers, bringing together existing regulations into a single document.
According to Bangladesh Sangbad Sangstha, this circular, issued by the Foreign Exchange Policy Department-2 of the central bank, repeals prior instructions on foreign exchange management contained in the 2018 Guidelines for Foreign Exchange Transactions (GFET), Volume I, and subsequent circulars, apart from monthly reporting instructions in Volume II. The circular will be effective for one year, with new instructions released during this period to be considered alongside it.
Under the new framework, AD banks are permitted to buy and sell foreign currencies with customers and other dealers at freely negotiated rates. Additionally, banks must report foreign exchange transactions valued at least at US$100,000 or equivalent twice daily through the Foreign Exchange Market (FXM) Module. A daily reference benchmark exchange rate, based on the weighted average of market transactions, will be published by the central bank. Banks are also required to display the day's exchange rates on digital screens visible to customers and on their websites.
A significant provision of the circular is the inclusion of guidelines that enable AD banks to assist eligible importers with commodity price risk hedging, including those outside designated specialised zones. This facility, originally introduced on September 13, aims to help importers manage international commodity price fluctuations, enhancing cost planning and competitiveness. Eligible importers include those importing raw materials, intermediate goods, essential commodities for domestic consumption, and public-sector entities engaged in large-scale import operations.
The circular permits the use of instruments such as commodity futures, forward contracts linked to commodity indices, swaps, and options. Importers can hedge up to 100 percent of their commodity exposure, with the hedge amount and maturity aligned with the corresponding import transaction's value and maturity. Hedging must address genuine price risks and not be used for speculative trading, with importers required to provide supportive documentation and operate under a board-approved risk management policy.
AD banks must receive prior approval from Bangladesh Bank to offer commodity hedging services by submitting board-approved product specifications and procedures. The circular also outlines rules for foreign currency accounts, banks' foreign exchange positions, forward contracts, swaps, and interbank transactions, while maintaining restrictions on virtual assets and currencies, including cryptocurrencies.
Issued under Section 20(3) of the Foreign Exchange Regulation Act, 1947, the circular aims to streamline foreign exchange operations in Bangladesh.