The interbank exchange rate in Bangladesh has surged to Tk 111 a dollar, marking a steady rise amid the ongoing dollar crisis on the country’s financial market. The crisis has resulted in a significant depreciation of the taka over the past two years.
The exchange rate was Tk 96 a dollar in September 2022 and Tk 85.5 a dollar in September 2021.
However, a number of banks found collecting remittance at as high as Tk 114-117 a dollar while the dollars are selling at Tk 119-121 each on the open market.
The impact of the sharp decline in the rate has been felt across various sectors of the economy, with businesses facing higher import costs and challenges in sourcing foreign currencies, economists said.
The higher import costs are often passed on to consumers in the form of higher prices for goods and services, which can erode their purchasing power and reduce consumer spending, they said.
Bangladesh, like many other countries, holds foreign debt denominated in US dollars.
As the taka continues to depreciate, it necessitates more takas to service the same amount of foreign debts in dollars.
This scenario can lead to heightened debt repayment obligations for both the government and businesses, placing additional strain on their financial stability.
The ongoing dollar crisis is attributed to several factors, including a substantial gap between the supply of and demand for dollars within the country.
The depletion of foreign exchange reserves, coupled with a sluggish inflow of remittances and export earnings, is exacerbating the imbalance in the foreign exchange market.
Furthermore, the prevalence of the informal ‘hundi’ market, where illegal currency trading takes place, is playing a significant role in intensifying the crisis.
In an effort to stabilise the foreign exchange market, the central bank has divested over $25 billion from its reserves in the past 27 months.
This includes $4.25 billion allocated to banks in the period of July-October of the current financial year 2023-24, $13.5 billion in FY23, and $7.62 billion in FY22.
The dollar sales had unintended consequence of reducing the foreign reserve of the BB, while also mopping up local currency, which created another problem — a liquidity crisis in the banking sector.
The country’s foreign exchange reserve, according to International Monetary Fund guidelines, decreased to $20.66 billion on November 1.
The depletion in reserve is raising concerns for both the government and the central bank, as it may lead to potential fallout.
BB officials said that the government and the Bangladesh Bank had implemented measures to curb imports and control the outflow of foreign currency.
A large deviation between formal and informal rates can divert remittance inflow from the official to the hundi channel, leading to potential under-invoicing of imports or informal capital outflows, bankers said.
Starting from July, the Bangladesh Bank was selling foreign currency at the prevailing interbank market rates.
Due to the dollar crisis and currency depreciation, the government has been struggling to control inflation, prevent energy shortage and manage rising business costs.
Bankers said that they were still facing difficulties in settling import payments and opening letters of credit due to a prevailing dollar crisis on the market.
New Age
