Bank bailouts through money printing could ignite inflation

The Bangladesh Bank has taken steps to normalize transactions in six banks facing liquidity crises. To ensure that depositors of these banks can withdraw money as needed, the central bank has already printed 22,500 crore taka and is providing loans to them. However, Bangladesh Bank's Governor, Ahsan H. Mansur, had stated back in August that, unlike in the past, no bank would be provided money through printed currency. The question now is, why has the central bank reversed its decision to refrain from printing money within just three months? What could be the impact of this decision? Moreover, how effective will the step of printing money to save banks be?

In this context, economists believe that the central bank is facing a 'dilemma' due to the recent situation. On one hand, it must ensure the security of depositors' money in weak banks, and on the other, it must keep inflation at a manageable level. In other words, the central bank is caught between a "tiger on land and a crocodile in water." However, we believe this is also a political decision. The question arises as to why those responsible for the incompetence and corruption leading these six banks toward bankruptcy have not been swiftly brought to justice to recover the lost funds. Therefore, amid intense pressure from depositors, it remains to be seen whether money printing and fueling inflation is a political decision that neglects the normal course of the economy. Moreover, during the previous government's time, there was a decision to merge weak banks with stronger ones to address the banking sector crisis, but this was never implemented. In addition, to reduce the risk of inflation, Bangladesh Bank has announced plans to issue bonds in the market. However, if the money raised through these bonds is not repaid on time, the risk of inflation will persist.

Recently, the prices of goods have been increasing uncontrollably. The pressure of inflation has left the general public in a state of confusion. Furthermore, the official inflation figures being provided are believed to be even lower than the actual rate. The question now is, where will this ongoing inflation end? Will the prices of goods continue to rise? Historically, when inflation rises above 9 per cent, it can take several years to come down. Bangladesh is heading in that direction, which is truly unfortunate.

Therefore, we would like to say that if the assets of those responsible for bankrupting these banks were acquired, sold off, and the proceeds used to rescue these banks, the burden of rising commodity prices on the general public could have been avoided. In that case, the question remains whether, by revitalizing the economy and through economic activity, these banks will be able to recover from this crisis in the future. At the same time, the recovery of defaulted loans must be addressed to solve the liquidity crisis of the banks.