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Bangladesh Bank decides to allow floating exchange rate for dollar

Black_cats

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Bangladesh Bank decides to allow floating exchange rate for dollar​


Star Business Report
Thu Jun 2, 2022 03:27 PM Last update on: Thu Jun 2, 2022 03:43 PM

The Bangladesh Bank today decided not to fix the exchange rate of the US dollars, allowing the market to set the price based on demand and supply.

The move aims at restoring stability in the foreign exchange market after the central bank's latest measure did not yield much effect.

Md Serajul Islam, spokesperson and an executive director of the Bangladesh Bank, said that the central bank took the decision as inflow of inward remittances had declined sharply in the last couple of days.

"This has created shortage of the American greenback in the market."

The BB communicated the decision to banks verbally. The move has already come into effect.

The BC selling rate, at which banks sell the dollar to importers, will be determined by the market as well, Islam said.

Similarly, exporters will sell dollars to banks based on the market rate.

The central bank will also declare the interbank rate, the benchmark rate of the taka against the US dollar, Islam said.

The local currency has been facing an acute pressure in the last couple of months due to the soaring import payments.

Against the backdrop, the BB has so far depreciated the taka against the dollar seven times this year alone.

The interbank rate today stands at Tk 89 per dollar, which was Tk 85.80 per dollar on December 30 and Tk 84.80 on June 2 last year.

 

bluesky

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I wonder why should the govt have declared a fixed exchange rate only yesterday and now it is the same govt that is talking about flexible rate.

It seems the entire govt has been jolted at the situation whereby the dollar reserves have come down by a few billion dollars only within a few days.

Flexible rate is what every other country apples for foreign currency. So, the latest BD decision is good. The exchange rate will go up and down every day a little depending upon demand and supply of the dollars.
 

Black Tornado

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I wonder why should the govt have declared a fixed exchange rate only yesterday and now it is the same govt that is talking about flexible rate.

It seems the entire govt has been jolted at the situation whereby the dollar reserves have come down by a few billion dollars only within a few days.

Flexible rate is what every other country apples for foreign currency. So, the latest BD decision is good. The exchange rate will go up and down every day a little depending upon demand and supply of the dollars.
Declared fixed exchange rate to show higher GDP and GDP per capita. Even India can fix the currency to show high GDP per capita but that just eats up reserves for nothing.
 

UKBengali

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Declared fixed exchange rate to show higher GDP and GDP per capita. Even India can fix the currency to show high GDP per capita but that just eats up reserves for nothing.


No that is not the reason why.

BD wanting to make imports cheaper was probably the main motivation.

There are good reasons to keep currency value stable.
 

Destranator

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A rapid depreciation of taka is likely to lead to double digit inflation as we still import a lot of essentials such as edible oil, wheat, sugar, industrial raw materials, fuel, etc..
A rapid appreciation of taka, on the other hand, would make our low value exports uncompetitive. This is the main reason why BB has been artificially absorbing fluctuations of the exchange rate by continually offloading and withdrawing USD from the banking channel.

The Ukraine crisis has now blown off the lid due to sharp rise in the cost of imports - the govt does not have enough dollars anymore to offload into the banking in order to keep propping up the exchange rate.
However, letting it freely float all of a sudden is a terrible idea - this should have been phased in gradually to avoid market shock.

Declared fixed exchange rate to show higher GDP and GDP per capita. Even India can fix the currency to show high GDP per capita but that just eats up reserves for nothing.
That's not how monetary policy works.
 

Black_cats

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Dollar stable at Tk92 as BB withdraws uniform exchange rate

BANKING

Jebun Nesa Alo
02 June, 2022, 10:50 pm
Last modified: 02 June, 2022, 10:57 pm

Bangladesh Bank Spokesperson Md Serajul Islam said several teams have been assigned to monitor the banks and oversee the foreign currency exchange of the banks​

Dollar stable at Tk92 as BB withdraws uniform exchange rate


The exchange rate of the US dollar remained stable at Tk92 on Thursday as most banks settled LCs at the rate after the Bangladesh Bank earlier in the morning asked them to quote the dollar rate based on market demand instead of the prescribed exchange rate.

The exchange rate was above Tk95 on Wednesday.

Asked what prompted the authorities to withdraw the uniform exchange rate, Md Serajul Islam, executive director and spokesperson of the Bangladesh Bank, told TBS, "The decision has been taken considering a decrease in remittance inflow through formal channels and the plight of exporters.

"The rate has been left to be fixed according to the market price to give priority to the foreign currency earners amid the volatile condition of the international market."

Banks behaved very rationally in dollar transactions on the day, said a senior treasury manager of a private bank.

LC payments became stagnant after the Bangladesh Bank set the uniform rate, but normalcy returned soon after the fixed rate was lifted, he said. Dollar pressure was also down, he added.

Earlier, leaders of the Association of Bankers, Bangladesh (ABB) held a Zoom meeting with all top executives and treasury heads of banks on Thursday morning.

At the meeting, ABB leaders called bankers to behave rationally in dollar selling for the sake of the country, according to bankers.

When contacted, Selim RF Hussain, chairman of the ABB and managing director of Brac Bank, said inter-bank transactions – the main liquidity source of foreign currency for banks – stopped after the central had introduced a uniform exchange rate, which is very dangerous for the banking industry. This is because, he said, if interbank transactions remain halted, any bank can default on foreign payment at any time, which will cause the country to earn a seriously bad reputation in the international market.

In this situation, bankers are working with the Bangladesh Bank to stabilise the market by lifting the uniform exchange rate, he mentioned.

He also said initially the rate may remain high but it will come down soon when banks will be comfortable with the new situation.

"From now on, the dollar rate will be set based on supply and demand. If demand is higher than supply, the rate will be higher."

He expressed hope that the rate would get stable at a lower rate soon.

On Wednesday evening, ABB leaders met the Bangladesh Bank governor and convinced him to lift the uniform exchange rate system.

Earlier, on Sunday, the Bangladesh Bank unofficially set the import LC settlement rate at Tk89.15 per dollar and the interbank exchange rate at Tk89.

However, the rate was ignored by most banks as the gap between the open market rate of the greenbacks and the LC settlement rate was more than Tk5.

Moreover, the wide gap between the official rate and the open market rate encouraged remitters to send money home through illegal channels, causing the country's remittance earnings to fall.

Amid this situation, the central bank lifted the uniform exchange rate on Sunday, only three days after its introduction.

Bangladesh Bank Spokesperson Md Serajul Islam said several teams have been assigned to monitor the banks and oversee the foreign currency exchange of the banks.

Asked if the lifting of the dollar rate cap would affect inflation, he said inflation is also on the rise in other parts of the world.

"We are not out of the system. However, inflation can be controlled with some tools other than the dollar price. We are currently monitoring the situation and further action will be taken accordingly," he said.

In May, Bangladesh's remittance receipts fell 13% year-on-year to $1.88 billion, according to the Bangladesh Bank.

Also, inward remittances in the first 11 months of the current fiscal year declined by 16% to $19.18 billion compared to the same period of the last year.

Meanwhile, the country's export growth was 34.56% year-on-year in July-April when import growth was 41.42% during the period. But, exports increased 23.24% to $3.83 billion in May, according to the latest data.

A top executive of the Bangladesh Bank said they have realised that a uniform exchange rate will not work as foreign exchange houses, which are not under their control, are selling dollars at higher prices.

For instance, Western Union that has the largest network for receiving remittances is selling the US dollar to banks at higher rates than the official rate. And they are not bound to follow the Bangladesh Bank's official rate, he said.

Amid this situation, the fixed exchange rate put pressure on the forex reserve as the Bangladesh Bank was getting huge requirements from banks for selling US dollars at the official rate, he said, adding that as a result, the reserves were shrinking fast.

The Bangladesh Bank in the last two weeks sold around $1.5 billion to banks.

The total dollar selling by the central bank crossed $6 billion this fiscal till Thursday.

On the other hand, the foreign exchange reserves stood at $42.11 billion on 1 June, central bank data show.

 

bluesky

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I was expecting BD Taka to fall Tk120 to 1 dollar. It would have caused the FDI people to invest in manufacturing factories in BD.

I wonder, how long Bangladesh Bank can support Taka artificially. Is it two months?
 

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Bangladesh Bank decides to allow floating exchange rate for dollar​


Star Business Report
Thu Jun 2, 2022 03:27 PM Last update on: Thu Jun 2, 2022 03:43 PM

The Bangladesh Bank today decided not to fix the exchange rate of the US dollars, allowing the market to set the price based on demand and supply.

The move aims at restoring stability in the foreign exchange market after the central bank's latest measure did not yield much effect.

Md Serajul Islam, spokesperson and an executive director of the Bangladesh Bank, said that the central bank took the decision as inflow of inward remittances had declined sharply in the last couple of days.

"This has created shortage of the American greenback in the market."

The BB communicated the decision to banks verbally. The move has already come into effect.

The BC selling rate, at which banks sell the dollar to importers, will be determined by the market as well, Islam said.

Similarly, exporters will sell dollars to banks based on the market rate.

The central bank will also declare the interbank rate, the benchmark rate of the taka against the US dollar, Islam said.

The local currency has been facing an acute pressure in the last couple of months due to the soaring import payments.

Against the backdrop, the BB has so far depreciated the taka against the dollar seven times this year alone.

The interbank rate today stands at Tk 89 per dollar, which was Tk 85.80 per dollar on December 30 and Tk 84.80 on June 2 last year.


Good, dont waste forex on keeping a steady rate. BD is no China who has a massive forex reserve.
Strengthened dollar will bee good in two ways;
- Making BD export cheaper
- Making imports more expensive

As a sise effect many garment owners may have to postpone the necceary upgrades in quipment, which most comes from China.
But thar is far better alternative than emptying the forex reserves.
 

Destranator

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I was expecting BD Taka to fall Tk120 to 1 dollar. It would have caused the FDI people to invest in manufacturing factories in BD.

I wonder, how long Bangladesh Bank can support Taka artificially. Is it two months?
I doubt exchange rate would make any notable difference in FDI inflow. Investers mainly want:
  1. good infrastructure,
  2. uninterrupted utilities,
  3. low trade barriers
  4. readily available trained labour force.
  5. security
  6. Less red tape
We are severely deficient in numbers #1, 4 & 6.

Good, dont waste forex on keeping a steady rate. BD is no China who has a massive forex reserve.
Strengthened dollar will bee good in two ways;
- Making BD export cheaper
- Making imports more expensive

As a sise effect many garment owners may have to postpone the necceary upgrades in quipment, which most comes from China.
But thar is far better alternative than emptying the forex reserves.
Unfortunately we have no choice but to let this happen although we might see food prices shoot up causing suffering for the poor and middle class. I just hope people don't die.
 
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bluesky

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I doubt exchange rate would make any notable difference in FDI inflow. Investers mainly want:
  1. good infrastructure,
  2. uninterrupted utilities,
  3. low trade barriers
  4. readily available trained labour force.
  5. security
  6. Less red tape
We are severely deficient in numbers #1, 4 & 6.
You are right in your assessment.

#1, correct infrastructures are now being built in the EPZs near the sea ports. The EPZs must be fitted with a proper access/ roads, telephone/ internet/ fax/ mobile services, gas, electricity, and tapped water.

#4. Every company has different types of jobs different from others. So, a country cannot just train everyone to suit the need of a certain company. A company hires his workers on academic ground and gives in-house job training for a few months and the workers start producing goods as per specs.

#6. Yes, the big issue is govt red tapes imposed by politicians and bureaucrats. Foreigners cannot go directly to them. So, they ask some agents/ brokers to approach them. Govt people ask for a ton of money and the FDI company leaves the country. This has been happening since 1947.

Vietnam, Cambodia and Laos have different approach that I cannot explain here. this is why FDIs go to those countries.

More to the above, a weak currency makes the goods cheaper to produce. Taka must be allowed to genuinely float. Our workers are inefficient and not systematic. Without a weaker currency I do not think many companies would go to BD to open shops.
 
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