The amount of cash held outside Bangladesh's banking system continued to rise in June, signalling a growing preference for physical money at a time when economic activity remains subdued and confidence in banks has yet to fully recover.
Currency in circulation outside banks, often dubbed mattress money, rose to Tk 3.36 trillion at the end of June 2026, up 13.5 per cent from Tk 2.96 trillion a year earlier, according to Bangladesh Bank data.
The increase means an additional Tk 400 billion was held outside the formal banking channel over the year, potentially putting further pressure on banks' cash positions as demand for withdrawals remains elevated.
The latest figure also represents a sharp increase from Tk 3.03 trillion recorded in March, with cash outside banks rising by around 10.9 per cent in just three months.
The buildup gathered pace during the first quarter of 2026. Currency outside banks increased from Tk 2.83 trillion in January to Tk 2.86 trillion in February before jumping to Tk 3.03 trillion in March.
People familiar with the development said banks were continuing to face pressure on their vault cash as customers preferred holding physical money rather than keeping funds as deposits.
They said uncertainty surrounding the banking sector, including the unexpected change of leadership at the banking regulator and amendments to a relevant legal instrument, had not been viewed positively by depositors and other market participants.
Such developments have contributed to uncertainty and encouraged some depositors to hold more cash outside banks, they added.
The rise in cash holdings came as overall money supply expanded at a comparatively slower pace.
Broad money, or M2, increased 11.11 per cent year-on-year to Tk 24.16 trillion in June 2026, up from Tk 21.74 trillion a year earlier.
This means currency outside banks grew about 2.4 percentage points faster than broad money during the period, indicating that the increase in physical cash holdings outpaced the expansion of the overall money supply.
June's M2 growth was also higher than the central bank's estimated 10.80 per cent and well above the 6.95 per cent growth recorded in June 2025.
Meanwhile, reserve money (RM), which reflects the monetary base and includes currency in circulation and banks' reserves, surged by Tk 631.89 billion, registering 15.29 per cent year-on-year growth at the end of June 2026.
The faster growth in reserve money than M2 suggests that liquidity at the base of the monetary system expanded significantly, although a substantial portion of the increase in currency demand was held outside commercial banks.
Currency outside banks stood at Tk 2.96 trillion in June 2025, compared with Tk 2.90 trillion in June 2024, showing that the pace of cash accumulation has accelerated considerably over the past year.
The latest increase marks a significant shift from the relatively modest rise recorded between June 2024 and June 2025.
Industry Insiders said restoring confidence in the banking system would be crucial to bringing more cash back into formal financial channels.
They said sustained uncertainty could encourage households and businesses to maintain larger cash buffers, potentially weakening deposit mobilisation and constraining banks' ability to channel funds into productive lending.
M Masrur Reaz, chairman of Policy Exchange Bangladesh, said the rise in currency outside banks reflected heightened uncertainty among households and businesses and could indicate a preference for liquidity and precautionary cash holdings amid weak economic activity.
He said the trend could put additional pressure on banks' deposit mobilisation and reduce the funds available for productive investment if sustained.
"Restoring confidence in the banking sector is critical. Stronger governance, transparency and accountability, along with greater certainty over bank resolution measures, are needed to encourage people to keep their money within the formal financial system," he said.
Reaz added that the rise in currency outside banks should be monitored alongside deposit growth, credit demand and broader economic activity to determine whether it reflects temporary precautionary behaviour or a more persistent shift away from bank deposits.
