Foreign Exchange Regulation Vol-1

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Foreign Exchange Regulation Vol-1

Type: Circular

Issuing Agency: Bangladesh Bank

Responsible Agency: Bangladesh Bank

Issuing Date: 31-07-2010

BANGLADESH BANK

GUIDELINES FOR FOREIGN

EXCHANGE TRANSACTIONS

Volume- 1

SUMMARISING

Instructions as of 31 May, 2009 issued to Authorised Dealers and

Money Changers in Foreign Exchange

To be read in conjunction with other instructions, subsequent

amendments and modifications issued from time to time.

2009

Preface

This publication, titled 'Guidelines for Foreign Exchange Transactions' is the successor to the last (1996) edition of the same. This is a compilation of the instructions to be followed by the Authorised Dealers & their constituents, Money Changers in transactions relating to foreign exchange. These guidelines come in two volumes. The first volume includes the instructions and the prescribed forms/declarations relating to individual transactions. The second volume delineates the procedure of reporting of foreign exchange transactions by Authorised Dealers to Bangladesh Bank, and includes the proformas for monthly returns, statements, schedules for such reporting. Both volumes include instructions as on the 31 May, 2009 and should be read with FE Circulars/Circular Letters issued subsequently.

Foreign Exchange Policy Department

Bangladesh Bank

Head Office, Dhaka. June, 2009.

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CONTENTS

CHAPTERS PAGE

1	Introduction and Definitions	1
2	Authorized Dealers and Money Changers	4
3	Bangladesh Bank's Transactions with ADs	8
4	Foreign Currency	10
5	Outward Remittances	16
6	Import and Export of Currency Notes	21
7	Imports Letters of Credit and Remittances against Imports	32
8	Exports from the Export Processing Zones	57
9	Foreign Investment in Bangladesh	58
10	Commercial Remittances (Other than for Imports)	63
11	Private Remittances	90
12	Travel	100
13	Private Foreign Currency Accounts	114
14	Convertible and Non-convertible Taka Accounts	126
15	Borrowing Abroad by Residents	137
16	Loans, Overdrafts and Guarantees	139

CHAPTER 1

INTRODUCTION AND DEFINITIONS

1. Foreign Exchange Regulation (FER) Act, 1947 (Act No. VII of 1947) enacted on 11th March, 1947 in the then British India provides the legal basis for regulating certain payments, dealings in foreign exchange and securities and the import and export of currency and bullion. This Act was first adapted in Pakistan and then in Bangladesh. The Act is reproduced at Appendix 1. Bangladesh Bank is responsible for administration of regulations under the Act. Appendix 4 provides a list of Bangladesh Bank's offices and their jurisdictions.

2. Basic regulations under the FER Act are issued by the Government as well as by the Bangladesh Bank in the form of Notifications which are published in the Bangladesh Gazette. Notifications issued by the Bangladesh Government and the erstwhile Government of Pakistan and the Bangladesh Bank and the erstwhile State Bank of Pakistan are reproduced at Appendices 2 and 3. Directions having general application are issued by the Bangladesh Bank in the form of notifications, FE (Foreign Exchange) circulars, SPA circulars and circular letters.

3. Authorised Dealers (ADs) in foreign exchange are required to bring the foreign exchange regulations to the notice of their customers in their day-to-day dealings and to ensure compliance with the regulations by such customers. The ADs should report to the Bangladesh Bank any attempt, direct or indirect, of evasion of the provisions of the Act, or any rules, orders or directions issued thereunder.

4. The ADs must maintain adequate and proper records of all foreign exchange transactions and furnish such particulars in the prescribed returns for submission to the Bangladesh Bank. They should continue to preserve the records for a reasonable period for ready reference as also for inspection, if necessary, by Bangladesh Bank's officials.

5. This publication summarises the instructions issued under the FER Act as well as the prudential instructions issued by Bangladesh Bank (as of 31 May, 2009) to be followed by ADs and Money Changers in their day-to-day foreign exchange transactions.

6. Specimen forms (other than those of periodical returns dealt with in Volume-2) prescribed in this publication are given in Appendix- 5, while Appendix- 6 contains (i) Notification issued by the Board of Investment for obtaining loan from abroad by industrial enterprises in Bangladesh in the private sector (ii) Policy Guidelines for establishment of Drawing Arrangement between the Exchange Houses abroad and Banks operating in Bangladesh (iii) List of required information/documents for seeking permission to act under section 18A and 18B of Foreign Exchange Regulation Act, 1947 and (iv) Guidelines to be followed to act as an agent (as Satellite Channel Distributor) of foreign principal(s) under section 18A of Foreign Exchange Regulation Act, 1947.

7. Terms having a special meaning for the purpose of the FER Act are defined under Section 2 of the Act. However, for the purpose of this publication and the instructions issued by the Bangladesh Bank from time to time, the following terms as defined below shall be used in addition to those defined under Section 2 of the FER Act, 1947.

C H A P T E R 2

SECTION - I

AUTHORISED DEALERS AND MONEY CHANGERS

1. Bangladesh Bank issues licences normally to scheduled banks to deal in foreign exchange. All applications for Authorised Dealer Licence should be made to the General Manager, Foreign Exchange Policy Department, Bangladesh Bank, Head Office, Dhaka with a declaration that 'Guidelines on Managing Core Risks in Banking' (as prescribed by Bangladesh Bank vide BRPD Circular No. 17, dated 07 October, 2003) pertaining to treasury functions in foreign exchange are already in place and all steps have been taken by the bank for internal monitoring and supervision of the branches for carrying out foreign exchange transactions. Besides, the bank should also provide information showing that it has adequate manpower trained in foreign exchange and there is prospect to attract reasonable volume of foreign exchange business in the desired location and the applicant bank meticulously complies with the instructions of the Bangladesh Bank especially with regard to submission of periodical returns.

2. Licences with limited scope are also issued to persons or firms (e.g. hotels, bank booths, gift shops etc.) to exchange foreign currency notes, coins, and travellers' cheques (TCs) in places where money changing facilities are required. The authorisations are granted to persons or firms of adequate means and status who, in the opinion of the Bangladesh Bank, will be able to conduct their dealings strictly in accordance with the foreign exchange regulations. Applications for the grant of licences with limited scope should be made to the General Manager, Foreign Exchange Policy Department, Bangladesh Bank, Head Office, Dhaka.

3. Bangladesh Bank may also issue "Money Changer" licences to persons/firms desirous of undertaking, as their sole line of business, the purchase and sale of foreign currency notes, coins, TCs from and to incoming and outgoing tourists. ADs are advised to process applications for licences on behalf of their customers provided Bangladesh Bank decides to issue new licences and forward the same with recommendation to the General Manager, Foreign Exchange Policy Department, Bangladesh Bank, Head Office. Instructions to be followed by the money changers are given in the section II of this chapter.

C H A P T E R 3

BANGLADESH BANK'S TRANSACTIONS WITH ADs

1. Bangladesh Bank's purchases and sales from and to the ADs are in US Dollar only, on spot basis. All such transactions with Bangladesh Bank are required to be in multiples of US$ 10,000, subject to a minimum of US$ 50,000. ADs are free to quote their own rates, ready and forward, for transactions in the interbank market and with their customers.

2. (a) The central Banks of Bangladesh, India, Iran, Nepal, Pakistan, Sri Lanka, Myanmar and Bhutan have an Agreement to settle current transactions between these countries through the Asian Clearing Union(ACU) mechanism. All such payments to the ACU member countries excepting those covered by loan/credit agreements are accordingly settled through the Asian Clearing Union (ACU) mechanism in "Asian Monetary Units which may be referred to in the abbreviated form as "AMUs". The Asian Monetary Units shall be denominated as 'ACU Dollar' and 'ACU Euro' which shall be equivalent in value to one US Dollar and one Euro respectively.

(b) The ACU Agreement referred to above provides for settlement of the following types of payments:

(i) Payments from residents in the territory of one participating country to residents in the territory of another participating country.

(ii) Payments for current international transactions as defined by the Articles of Agreement of the International Monetary Fund.

(iii) Payments permitted by the country in which the payer resides.

ADs shall maintain nostro accounts in AMUs (ACU Dollar, ACU Euro) with their correspondent banks in ACU member countries for the purpose of settlements through ACU. Similarly accounts in AMUs (ACU Dollar and ACU Euro) may be opened by the ADs in their books in the names of their correspondents in ACU member countries. ADs may pay interest on the balance of nostro accounts in AMUs as per mutually agreed terms and conditions with the correspondent(s).

C H A P T E R 4

SECTION - I

FOREIGN CURRENCY ACCOUNTS OF THE ADS

AND PURCHASE AND SALE OF FOREIGN CURRENCY

1. ADs may maintain accounts in freely convertible currencies with their correspondents/branches abroad.

2. The foreign currencies held by ADs shall at all time be deemed to be held at the disposal of the Bangladesh Bank. The Bangladesh Bank, through its Foreign Exchange Policy Department, may give such instructions with regard to the disposal of such currencies as it may deem necessary and expedient.

3. Bangladesh Bank sets prudential limits on each AD bank's open (overbought/oversold) exchange position. The AD should ensure that the prescribed open position limit is not exceeded. If an AD exceeds the prescribed limit and fails to furnish satisfactory explanation for the same, it may be asked to sell the excess amount ready and to cover its position by buying forward for deliveries corresponding to the maturities of its own forward obligations.

4. The ADs are required to work out their open exchange position (overbought/oversold) daily as at the close of the business on each working day and report to the Bangladesh Bank at the subsequent working day (Chapter 2, Vol. 2). If for reasons beyond control the overbought/oversold position during the period under report is in excess of the prescribed limit, the daily statement must be accompanied by a letter explaining the circumstances.

C H A P T E R 5

SECTION- I

OUTWARD REMITTANCES

1. (i) Barring a few remittances of special nature, most outward remittances either in its entirety or upto a certain limit set by Bangladesh Bank may be approved by the ADs, following declaration of Taka as convertible for current account payments from March, 1994. However, the limits of release of foreign exchange set forth in this Guidelines are indicative; all bonafide requests beyond these indicative limits and payment transfer requests for a current international transaction not specifically included in this Guidelines will be accommodated by Bangladesh Bank upon establishing the bonafides of the expenses.

(ii) All remittances from Bangladesh to a foreign country or local currency credited to non-resident Taka accounts of foreign banks or convertible Taka account constitute outward remittances of foreign exchange. ADs must exercise utmost caution to ensure that foreign currencies remitted or released by them are used only for the purposes for which they are released; they should also maintain proper records for submission of returns to Bangladesh Bank as also for the latter's inspection from time to time.

2. In all cases of purchase of foreign currency, an application must be made to an AD. For payments against imports into Bangladesh, the prescribed application form is form IMP (Appendix 5/11) and for other types of remittances form TM (Appendix 5/5). TM form must be used for reporting by the ADs even when remittance is approved by Bangladesh Bank in any other manner, for instance by issuing a special permission/approval letter. On receipt of the application from the client/customer, the ADs may effect the sale of foreign exchange if they are empowered to approve the application. If the transaction requires prior approval of the Bangladesh Bank, the application should be forwarded by the AD to the Bangladesh Bank for consideration.

3. Applications for Bangladesh Bank's prior approval for outward remittances, wherever required, should be submitted to the Bangladesh Bank only through the ADs and not by their customers directly; all such applications should be forwarded by the ADs to Bangladesh Bank by their own messengers or by post. While applying to Bangladesh Bank for releasing foreign exchange on behalf of customers, AD should submit necessary papers/documents duly attested by the authorised official of the AD alongwith their recommendations/comments.

C H A P T E R 6

IMPORT AND EXPORT OF CURRENCY NOTES AND

COINS, FOREIGN EXCHANGE, GOLD, SILVER,

JEWELLERY AND SECURITIES ETC.

1. (A) In terms of Bangladesh Bank Notification Nos FE-1/03-BB dated 6th January, 2003 and FE-1/04-BB dated 23rd March, 2004 any person may bring into Bangladesh from any place outside Bangladesh without any limit foreign currency notes or bank notes other than-

(i) Un-issued notes and coins.

(ii) Notes legal tender in Bangladesh in excess of Taka 500 in value.

Provided that the concerned person makes a written declaration to the Customs Authorities at the time of arrival, in FMJ Form (See Appendix 5/7) of the entire amount; no declaration will however, be necessary if the amount brought in does not exceed US$ 5000 or its equivalent in foreign currency and does not exceed Taka 500 in notes legal tender in Bangladesh.

(B) Sending into Bangladesh by post/courier or otherwise of any currency note, bank note or coin by any person from abroad without general or specific permission from the Bangladesh Bank is prohibited.

(C) Any traveller entering into Bangladesh may bring with him at every time Bangladesh currency notes/coins within the limit as prescribed hereunder:

(i) Members of the crew of a ship or an aircraft or the staff of a railway may bring Bangladesh currency notes upto Tk. 500 at any one time.

(ii) An incoming/outgoing passenger may bring in/take out upto Taka 500 ( five hundred) in Bangladesh currency at the time of arrival into/departure from Bangladesh.

(iii) Every foreign national travelling on a foreign passport and persons travelling on Bangladesh passports will, while entering into Bangladesh by sea, air or land from any destination outside Bangladesh declares to the Customs authorities, on FMJ Form to be completed in a single copy all currencies if the amounts brought in exceed the limits mentioned at para 1 (A) above.

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