Is Bangladesh Bank playing with the floating exchange system to encourage remittances?

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On Tuesday, Bangladesh Bank sold $129 million to local banks at the rate of Tk 92. On Monday, the rate was 91.95 Tk.

Rising US dollar prices essentially devalued the taka rate, even with the restoration of the floating exchange rate.

The floating exchange rate system, which was first introduced in 2003, was reintroduced for banks to fix the US dollar rate according to the supply and demand situation.

However, given that the main supplier of US dollars, Bangladesh Bank, is increasing the price at which the greenback is sold to local banks, the price of US dollars is unlikely to fall anytime soon.

Analysts say the central bank is taking such measures to encourage non-resident Bangladeshis, or NRBs, to send remittances through banking channels because the flow of remittances, which is one of the lifelines of Bangladesh’s economy, has shrunk considerably over the past two years. quarters of the current fiscal year.

The devaluations sent the forex market somewhat into a spiral, as dollar prices soared dramatically.

At one point last month, exchangers outside the formal banking system were selling a dollar for over Tk 100, the highest in Bangladeshi history.

The record rise in the price of the US dollar in the parallel market, according to market insiders, hurt remittances through banking channels, as non-resident Bangladeshis, the main source of remittances for the country, used systems informal transaction, such as Hundi or just old haulage and curbside market selling to get a better price.

Over the past two months, the central bank has imposed strict control of the dollar’s exchange rate, with a system called the “managed exchange rate or floor rate”, due to the massive depletion of the greenback it has in his trunk.

As a result, analysts said, banks struggled to provide enough US dollars to pay import costs, and the situation simultaneously caused exporters to delay collecting their earnings, leading to a mismatch between supply and demand.

The depletion occurred due to a large discrepancy between the amounts paid for imports through letters of credit and the cumulative inflow of foreign currency through exports and remittances.

Bangladesh’s recovering post-pandemic economy has faced a massive explosion in import costs, especially in the first nine months of the current fiscal year.

Although export data also suggests similar growth, a significant drop in remittances from non-resident Bangladeshis has created a large gap which the Bangladesh Bank and analysts say has caused reserves to lose nearly $1 billion. dollars each month.

Central bank spokesman Md Serajul Islam said on Tuesday it sold $6.079 billion to local banks this fiscal year.

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