Floating exchange rate for dollar

The war in Europe has manifested itself in difficulties in several areas, including adversely impacting the exchange rate for USD. In the last four months, the Dollar has surged against the Taka, leading to a shortage of the currency in the market plus a scramble for hoarding. In such a situation, the central bank recently sold $80 million to private banks to meet the demand.

In short, the Ukraine conflict, which is having a detrimental impact on economies across the globe, is also influencing Dollar exchange rates.

To keep a steady rate for the dollar is imperative along with countering unscrupulous maneuvering of the market through illegal hoarding.

As per a report published in this newspaper yesterday, The Bangladesh Bank has finally adopted floating exchange rate for USD with the aim to reducing pressure on foreign exchange reserves. The decision has already pushed up the inter-bank exchange rate.

Reportedly, following the central bank decision, the average inter-bank exchange rate stood at Tk. 103.91 per USD; on that day, the highest inter-bank exchange rate was at Tk 106.15 per USD and the lowest was at Tk 101.67 per USD,

The Bangladesh Foreign Exchange Dealers Association (BAFEDA) is now calculating the inter-bank exchange rate and reporting to the central bank daily. Despite the recent inexplicable rise of the rate of exchange in the open market, most TV channels have been reporting on the scramble to buy the US dollar.

Economists analysing the trend have come up with several observations: firstly, they feel that in the coming days, the rate of exchange will go even higher and, therefore, Dollar buying and selling would prove to be a lucrative business. Secondly, in a time of economic ferment, Dollar may prove to have more saleable quality than gold. The prospect of making a hefty profit is allegedly encouraging people to hoard the currency, an activity carried out outside the purview of a legal frame work.

On Tuesday, $30 million was sold to banks from its reserves to allow settlement of only government imports at Tk. 96 per USD.

Following a central bank instruction, BAFEDA on September 11 sent a letter to the authorised dealer banks, saying that all export proceeds and all inward remittance must be bought at Tk 99 per USD and the greenback are bought from exchange houses at Tk 108 per USD.

Bangladesh’s forex reserves slid to $37.06 billion on last week following the routine payment of $1.73 billion made to the Asian Clearing Union (ACU) against imports. There are also fears that ‘over invoicing’ are a cause behind the dollar crisis.

From a practical perspective, eradicating a plethora of shady dealings involving the dollar may be impossible; however, the spiralling exchange rate can be controlled with strict monitoring of the money exchange centres along with measures to prevent panic buying.

Several countries have adopted austerity measures to save foreign currency while the PM of Bangladesh has asked for belt tightening and suspension of the purchase of non-essential items.

Notable economists have also expressed concern over multiple exchange rates, saying that this could cause in the price hike of commodities; on the other hand, importers claim that banks are manipulating forex market to cause a dollar crisis, which leads to a higher rate for import settlements.

While a floating rate is a temporary solution, the government needs to be vigilant to detect and take action against any unethical market manipulation.

The truth remains, the dollar imbroglio will provide temptation to certain quarters to make a swift profit. From a practical angle, forestalling all such moves may be impossible and therefore, a relatively stable market relies on how a sense of morality prevails over the urge to capitalise on a crisis.