Foreign exchange clearing moves to RTGS from September 4

Commercial banks in Bangladesh will have to conduct their currency clearing activities through the central bank’s real-time gross settlement (RTGS) from September 4.

The Bangladesh Bank issued a notice to this effect today.

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Currently, banks are clearing foreign demand drafts (FDD) issued in foreign currencies under the BB’s foreign currency clearing scheme.

But from September 4, clearing activities must be conducted through RTGS instead of FDD, the BB said.

According to the central bank, the entire process of clearing and settling foreign exchange (FC) is still manual and paper-based, which requires the physical movement of instruments and officials, resulting in higher transaction costs and disadvantages.

In order to overcome the problem, the BB decided to introduce FC clearing and settlement through the RTGS system.

To facilitate a safe, secure and efficient interbank payment system, the BB launched the BD-RTGS system in 2015, opening a new horizon in the payment ecosystem and enabling instant settlement of high-value and time-sensitive payments.

The system is capable of performing clearing and settlement in both local and foreign currencies.

The BB will introduce clearing and settlement in foreign currencies: US dollar, British pound, euro, Canadian dollar and Japanese yen. Chinese yuan clearing and settlement will soon be integrated into the RTGS system, he added.

RTGS is a credit transfer system and the operation of the FC in the RTGS system is similar to that of the local currency settlement system.

At the beginning of each business day, the specific FC account of the banks will be debited and the corresponding RTGS settlement account will be credited in accordance with the standing instructions of the participants.

Then the transactions will be settled instantly and the funds will be transferred to the beneficiary’s account. The transaction will only be settled when the RTGS settlement account of a specific currency has sufficient balance.

At the end of the business day, the balance of the settlement account of the RTGS system will be transferred to the specific FC account of the banks.

Thus, FC clearing through the RTGS system will eliminate settlement risk as well as credit risk for participants, the central bank said.