Bangladesh is witnessing a striking contradiction in its financial landscape. Digital transactions are expanding rapidly, yet the amount of cash held outside the formal banking system has continued to rise, reaching a new high in recent months.
According to Bangladesh Bank data, cash outside banks stood at Tk349,374 crore at the end of May this year. The amount subsequently climbed above Tk370,000 crore in June and exceeded Tk380,000 crore in July. The latest increase highlights the persistent demand for physical cash despite the growing availability and use of digital payment systems.
Economists and bankers say there is no single explanation for the trend. Prolonged inflation, the country’s large informal economy, continued dependence on cash among small businesses, concerns over parts of the banking sector, limited financial inclusion and liquidity pressures at some banks are all contributing to the increase.
The long-term rise is particularly notable. In 2011, cash outside the banking system stood at Tk58,417 crore. By June 2021, it had risen to Tk209,517 crore. The figure increased further to Tk236,448 crore in June 2022 and Tk291,913 crore in June 2023.
There was some fluctuation during 2024 and 2025, but the upward trend strengthened again during the current financial year. Cash outside banks stood at Tk296,451 crore in June last year before rising to Tk349,374 crore by the end of May this year. It then increased by roughly another Tk30,000 crore within just two months.
Banking-sector uncertainty adds pressure
Recent developments in the banking sector may also have encouraged some depositors to hold more money in cash. Uncertainty surrounding several banks, including changes in leadership and management, contributed to withdrawals by some customers.
During a period of uncertainty surrounding Islami Bank Bangladesh PLC, the bank reportedly experienced deposit withdrawals of about Tk25,000 crore. Bangladesh Bank subsequently provided around Tk13,000 crore in liquidity support to help stabilise operations. As conditions improved, some customers who had withdrawn funds amid the uncertainty returned their money to the bank.
Mohammad Zahir Hossain, the administrator appointed to Islami Bank and an executive director of Bangladesh Bank, said the bank’s regular operations are now normal and that the liquidity support obtained from the central bank would be repaid in instalments.
The rise in cash outside banks should also be considered alongside the growth in deposits. During the first 11 months of the 2025–26 financial year, from July to May, bank deposits increased by Tk163,522 crore. During the corresponding period of the previous financial year, deposits had risen by Tk89,774 crore.
By the end of May, total deposits held by customers in the banking system stood at Tk20,41,692 crore, representing annual growth of 11.41 per cent.
Inflation increases the need for cash
Persistent inflation is another major factor behind the increase in cash holdings. When prices rise, consumers and businesses need more money to purchase the same quantity of goods and services. As a result, the nominal value of transactions can increase even when the volume of goods and services purchased does not rise proportionately.
Masrur Arefin, managing director and chief executive officer of City Bank, has linked the increase partly to inflation-driven changes in retail transactions. When everyday purchases become more expensive, a larger amount of money changes hands. A significant share of those transactions still takes place in cash, particularly in the retail and small-business segments.
He has argued that bringing inflation down to around 5 per cent could significantly reduce the amount of cash held outside banks. At the same time, expanding the use of QR payments, point-of-sale machines, cards and internet banking among small shops and businesses would be necessary to reduce dependence on physical currency.
Digital payments have not displaced cash
Bangladesh has made substantial progress in digital finance. Mobile financial services now facilitate transactions worth around Tk250,000 crore a month, while banking applications and internet banking also account for large transaction volumes. The use of debit, credit and prepaid cards has expanded as consumers become more accustomed to electronic payments.
Bangladesh Bank has also been expanding digital payment infrastructure, including Bangla QR, real-time gross settlement, the National Payment Switch Bangladesh and mobile financial services. These systems have made electronic payments increasingly accessible across the economy.
Yet the growth of digital transactions has not translated into a corresponding decline in cash holdings.
Bangladesh Bank executive director and spokesperson Arif Hossain Khan said merchants have increasingly been brought under the Bangla QR system and that several digital payment channels are gaining popularity. At the same time, however, the continued rise in cash outside banks is a concern because it raises questions about whether some people are becoming less willing to keep their money within the formal banking system.
He also pointed to the prolonged inflationary pressure since 2022 and the substantial liquidity assistance extended by the central bank to weaker banks. Part of the funds involved may have been withdrawn by depositors, potentially contributing to the increase in cash holdings.
Informal economy remains a major factor
Bangladesh’s large informal economy also plays a significant role. Fahmida Khatun, executive director of the Centre for Policy Dialogue and a member of the Bangladesh Bank board, has pointed out that digital payment expansion would normally be expected to reduce reliance on informal economic activity. In Bangladesh, however, both bank deposits and cash outside banks are increasing at the same time.
That presents an important challenge for policymakers. A sizeable part of economic activity still takes place outside the formal financial system, particularly among small traders, wholesalers, retailers and other cash-based businesses. Where digital payment facilities are available, customers and merchants may nevertheless continue to prefer cash because of established habits, convenience or limited familiarity with electronic payment systems.
In rural and semi-urban areas, the comparatively limited reach of formal financial services can reinforce this pattern. Cash also remains deeply embedded in everyday commercial transactions, making a rapid transition to entirely digital payments difficult.
Trust is as important as technology
The presence of more than Tk380,000 crore outside the banking system is therefore about more than consumer preference for banknotes. It reflects a combination of inflation, financial behaviour, banking-sector confidence, informal economic activity and the accessibility of formal financial services.
The simultaneous rise in bank deposits and cash outside banks suggests that Bangladesh’s financial system is operating through several channels at once. More digital transactions do not automatically mean that people will abandon cash. Digital infrastructure can provide alternatives, but broader economic and institutional conditions influence whether people choose to use them.
Reducing cash dependence will require more than installing QR codes or expanding mobile banking. Restoring confidence in banks, protecting depositors, improving the reliability of financial institutions, widening access to formal banking, encouraging small businesses to accept digital payments and containing inflation will all be important.
Policymakers also need a clearer understanding of where the large stock of cash outside banks originates and how it moves through the economy. Tracking those patterns can provide valuable insight into household consumption, business activity, tax compliance, financial inclusion and public confidence in the banking system.
For Bangladesh, the challenge is no longer simply to make digital payments available. It is to create an economic and financial environment in which people and businesses feel sufficiently confident to keep and transact more of their money within the formal financial system.