The government is going to make local Taka currency convertible in capital account, a move which, central bank sources say, will allow overseas investment by Bangladeshi entrepreneurs.

This initiative is part of a proposal to amend the Foreign Exchange Regulation Act (FERA) to upgrade it in line with what is called international standard, sources in the finance ministry told daily sun.

Bangladesh is set to see convertibility of Taka in capital account two decades after the country had made the provision to make Taka convertible in current account in 1993.

The government has sought assistance from the International Finance Corporation (IFC), a member of the World Bank Group, to amend the forex act (FERA).

“We have sought technical assistance from the IFC to bring certain changes in the law to make it time-befitting,” Banking Division Secretary Shafiqur Rahman Patwari said on Monday.

Bangladesh Bank (BB) has earlier proposed some amendments to the FERA and requested the finance ministry to seek assistance from the IFC since, the sources said, the act contains some complex issues.

The matter of convertibility of current account is a key issue in the proposal alongside amendment to the provisions on foreign trade and current account as well.

“All types of foreign exchange transactions will be brought under the jurisdiction of the law when it would be amended,” reads the draft proposal.

It said definition of resident and non-resident foreign currency account holders need to be included in the amended act to guide the banks in opening accounts.

The draft amendment proposal said the central bank should be given authority to impose financial penalty on banks or their employees for violation of any provision of the proposed act.

Bangladesh has pursued an apparently conservative policy in allowing a completely floating exchange rate fearing fluctuation in exchange rate. Also restriction on outflow of investment is there to avoid exchange rate volatility and keep foreign exchange reserve stable. Mohammad Rizwanul Huda, deputy secretary of the finance ministry, recently wrote a letter in this regard to the programe manager of IFC’s advisory services, South Asia.

The government may sign a “cooperation agreement” with the World Bank to receive the technical assistance from the IFC, sources in the banking division said.

In the letter, the government requested the IFC to engage some consultants to propose amendments to the existing FERA.

The government wants to work with IFC to ensure rising flow of foreign direct investment in Bangladesh.

The Daily Sun/Bangladesh/ 8th May 2012