Bangladesh is witnessing a striking contradiction in its financial landscape. While digital payments, mobile financial services and internet banking are expanding rapidly, the amount of cash held outside the formal banking system has climbed to an unprecedented level.

According to Bangladesh Bank data, cash outside banks stood at Tk349,374 crore at the end of May this year. It subsequently rose above Tk370,000 crore in June and exceeded Tk380,000 crore in July, marking a new high.

The increase has come despite substantial growth in digital transactions. Economists and bankers say the persistence of cash reflects a combination of high inflation, the size of the informal economy, cash-dependent businesses, limited financial inclusion and concerns over confidence in parts of the banking sector.

The long-term trend is particularly notable. In 2011, cash outside banks amounted to Tk58,417 crore. By June 2021, the figure had risen to Tk209,517 crore. It increased further to Tk236,448 crore in June 2022 and Tk291,913 crore a year later.

In June 2024, the amount stood at Tk296,451 crore. By May this year, it had surged to Tk349,374 crore. The subsequent rise during June and July pushed the total beyond Tk380,000 crore.

The figures indicate that the growth in cash holdings cannot simply be explained by seasonal demand or temporary changes in consumer behaviour. A broader set of economic and financial factors appears to be influencing how households and businesses hold and use money.

Banking-sector uncertainty adds to cash demand

Recent instability involving several banks has also contributed to concerns among depositors. Officials familiar with Bangladesh Bank’s currency management operations have pointed to developments in the banking sector during June as one factor behind the rise in cash withdrawals.

Islamic Bank Bangladesh PLC, in particular, experienced a period of uncertainty surrounding changes in its board leadership and management. During that period, deposits worth around Tk25,000 crore reportedly left the bank. Bangladesh Bank subsequently provided approximately Tk13,000 crore in liquidity support to help stabilise its operations.

The bank’s administrator and Bangladesh Bank executive director, Mohammad Zahir Hossain, said its regular activities had returned to normal and that the liquidity support obtained from the central bank would be repaid in instalments.

The episode illustrates how concerns about the soundness of individual banks can influence depositor behaviour. When confidence weakens, some customers may prefer to hold physical cash temporarily rather than leave funds in bank accounts.

Yet the rise in cash outside banks has occurred alongside strong growth in deposits, making the picture more complex.

During the first 11 months of the 2025-26 financial year, from July to May, deposits in the banking system increased by Tk163,522 crore. The corresponding increase during the same period of the previous financial year was Tk89,774 crore.

By the end of May, total customer deposits in the banking system had reached Tk20,41,692 crore, representing annual growth of 11.41 per cent.

This suggests that Bangladesh is not simply experiencing a wholesale shift away from banks. Instead, bank deposits and physical cash are expanding simultaneously, pointing towards multiple forms of saving, spending and financial activity across the economy.

Inflation keeps more money in circulation

Inflation is another major factor behind the growing volume of cash.

Since the sharp rise in prices began affecting Bangladesh’s economy, households have needed more money to purchase the same quantities of food, clothing, transport and other goods and services. As prices rise, the nominal value of transactions also increases, even when the physical volume of goods purchased remains unchanged.

Masrur Reza, managing director and chief executive officer of City Bank, has argued that higher inflation means more money is required for everyday purchases. A significant share of retail transactions continues to take place in cash, allowing a larger amount of physical currency to circulate through markets.

He has suggested that a substantial decline in inflation could reduce the volume of cash held outside banks. At the same time, he has highlighted the need to expand digital payment infrastructure among small retailers and businesses.

For many small shops and informal enterprises, cash remains convenient and widely accepted. Although QR payments, point-of-sale terminals, cards and online banking have become increasingly common, their availability and regular use are not yet uniform across all parts of the economy.

Digital transactions are growing rapidly

The rise in cash is taking place against the backdrop of a major expansion in digital finance.

Mobile financial services now facilitate transactions worth roughly Tk250,000 crore a month. Most banks offer debit, credit and prepaid cards, while mobile applications and internet banking have also become important channels for transferring and spending money.

Bangladesh Bank has been promoting a range of digital payment systems, including Bangla QR, the Real Time Gross Settlement system, the National Payment Switch Bangladesh and mobile financial services. These platforms have helped make electronic transactions faster and more accessible.

However, an increase in digital transactions does not automatically mean that cash will disappear. Digital payments may be growing fastest in formal retail, salary payments, bill settlement and person-to-person transfers, while substantial parts of wholesale trade, small business and the informal economy continue to rely heavily on physical currency.

Bangladesh Bank executive director and spokesman Arif Hossain Khan has said the expansion of Bangla QR and other digital payment channels has accelerated in recent years. Despite this progress, he described the continued increase in cash outside banks as a matter requiring attention, particularly in relation to public confidence in the banking system.

He also pointed to the prolonged impact of inflation since 2022 and the liquidity assistance provided to weaker banks. Some of the funds injected into the banking system may subsequently have been withdrawn by depositors, adding to the stock of cash outside banks.

The informal economy remains a major factor

Economists say the scale of Bangladesh’s informal economy is central to understanding the country’s continued dependence on cash.

Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue and a member of Bangladesh Bank’s board of directors, has noted that the simultaneous growth of digital payments, bank deposits and cash outside banks requires closer examination by policymakers.

A large informal economy means that a significant proportion of economic activity takes place outside conventional banking and formal financial channels. Many small businesses operate predominantly in cash, while some workers and traders have limited access to formal banking facilities.

The issue also has implications for taxation and financial transparency. Where transactions remain outside formal channels, it can be more difficult for authorities to establish the scale of business activity, assess taxable income and track the movement of funds.

Economists therefore argue that the rising cash stock should not be viewed solely as a payment-method issue. It can also provide clues about financial inclusion, tax compliance, informal economic activity and public confidence in financial institutions.

Trust remains critical

The latest figures highlight a challenge that cannot be solved simply by introducing more digital payment technologies.

For digital transactions to replace cash on a meaningful scale, consumers and businesses need reliable access to banking services, affordable payment facilities and confidence that their money will remain secure within the financial system. Small merchants also need practical incentives and infrastructure to accept electronic payments regularly.

Improving financial inclusion in rural and semi-urban areas is equally important. Where banking services are inconvenient or unreliable, cash naturally retains an advantage.

The government and financial regulators also face the wider task of restoring confidence in weaker institutions, maintaining adequate liquidity and ensuring stronger governance across the banking sector. At the same time, sustained efforts to contain inflation would reduce the amount of money required for everyday transactions.

The more than Tk380,000 crore held outside banks therefore represents far more than a record figure in Bangladesh Bank’s statistics. It reflects the interaction of inflation, consumer behaviour, business practices, financial confidence and the country’s large informal economy.

Understanding where this cash originates, how it circulates and why people choose to keep it outside banks will be crucial for policymakers. Bangladesh’s transition towards a more digital financial system may be advancing rapidly, but the latest cash figures show that physical money remains deeply embedded in the country’s economic life.