Bangladesh's economy is currently navigating a complex macroeconomic environment marked by persistently high inflation, subdued private sector credit growth, liquidity management challenges, and sluggish investment. Amid the policy focus on inflation, the exchange rate, and interest rates, one issue deserves equal attention - the unprecedented accumulation of physical currency held outside the formal banking system.
Despite the rapid expansion of mobile financial services (MFS), internet banking, agent banking, and the recently introduced Bangla QR payment system, Bangladesh is witnessing a historic surge in cash held outside banks. For an economy striving for greater financial inclusion and a modern digital payment ecosystem, this growing preference for cash is a serious macroeconomic challenge. Because it deprives the formal financial sector of liquidity, weakens monetary policy transmission, constrains private sector lending, and complicates the fight against inflation.
Bangladesh Bank data in this context reveal a remarkable upward trend over the past decade. Currency outside banks stood at approximately Tk 581 billion in 2011, and rose nearly fivefold to around Tk 2.91 trillion by June 2023. The figure held relatively steady at about Tk 2.96 trillion through mid-2025, before accelerating sharply. By May 2026, it had exceeded Tk 3.49 trillion, and recent Bangladesh Bank estimates put the number above Tk 3.8 trillion by July 2026. This is the highest amount of cash held outside banks in the country's history.
This acceleration can be attributed to several interconnected forces. Households, businesses, and segments of the informal economy are increasingly choosing to hold physical cash rather than keep funds in the formal banking system. The most direct driver is inflation. Since 2022, rising prices for food, transport, healthcare, and other essentials have pushed up the cash households need for daily transactions, so more money circulates in retail markets without returning to banks.
A second, less visible catalyst is the eroding confidence of depositors. Confidence is the cornerstone of any banking system, and frequent reports of loan irregularities, rising non-performing loans (NPL), and governance weaknesses at a handful of institutions have unsettled depositors more broadly. Although these problems may be concentrated within a limited number of institutions, they often create broader concerns across the financial sector, prompting precautionary withdrawals and increased cash holdings.
A third factor is the negative real return on savings whenever inflation outpaces deposit rates. Under these conditions, depositors reasonably feel that keeping money in banks erodes its purchasing power and so they turn instead to cash or physical assets, such as land and gold.
The consequences ripple through the financial system. Banks rely on deposits to fund lending; as deposits weaken, they turn to costlier interbank borrowing or Bangladesh Bank liquidity facilities, and higher funding costs eventually flow through to businesses and consumers as more expensive loans. Weaker deposit growth also directly limits banks' capacity to extend new loans, which in turn slows business expansion, industrial production, employment, and growth. Because Bangladesh Bank's policy rate and liquidity tools work mainly through the formal financial system, a large and growing pool of cash outside it also dulls the effectiveness of monetary policy itself.
The upside of reversing even part of this trend could be substantial. Additional deposits would strengthen banks' liquidity buffers, reduce reliance on expensive emergency funding, and support lending to manufacturing, SMEs, agriculture, and export industries. A stronger banking sector can also ease pressure on imports and support exchange rate stability over the medium term, while a smaller pool of informal liquidity gives Bangladesh Bank more traction over money supply and inflation through its usual tools.
Rebuilding public trust is the starting point, and it will take sustained effort from regulators, financial institutions, and the wider financial ecosystem. Depositors need to consider the right parameters to evaluate institutional strength, regulatory compliance, capital and liquidity adequacy, timely audited financial statements, board quality and management experience, transparency, and a clean governance record. Asset quality (particularly the level of NPLs), long-term reputation, and the quality of customer service and digital banking should be taken into consideration as well. Institutions with diversified funding, prudent risk management, strong internal controls, and a proven record of honoring obligations under stress are best placed to safeguard depositors' funds and earn back that trust.
The rapid increase in currency outside banks is a macroeconomic concern for Bangladesh with significant implications for liquidity management, private sector investment, inflation control, and sustainable economic growth. The ongoing digital transformation demonstrates that technology alone cannot change financial behavior. Public confidence, macroeconomic stability, sound governance, and attractive real returns on savings remain equally important. Maintaining confidence in the broader system is essential to preventing localized problems from triggering unnecessary contagion across the sector. Alongside this, stronger deposit protection, wider digital payment adoption, more inclusive financial products, and continued financial literacy efforts would all help draw savings back into the formal system.
A transparent, well-governed, and resilient banking sector is ultimately the most effective incentive for bringing Bangladesh's cash back into its banks, and back to work for its economy.
Nurul Karim Patwery, ACMA, is the Head of Treasury, IDLC Finance PLC.
