For nearly three years, Bangladesh was forced to watch helplessly from the sidelines, as the drain on the country's foreign exchange reserves kept getting deeper and deeper. By one calculation, from the peak of $48.1 billion recorded in August 2021, Bangladesh Bank witnessed almost 75% or three-fourths of that amount slip away - losing $35 billion in just 33 months - to arrive at a net reserve figure that may be less than $13 billion today.

Certainly the convoluted discourse it created around the country's reserves - this formula, that formula, IMF manuals, and payouts from the reserve in the form of loans that were not initially disclosed, the so-called Export Development Fund, have all contributed to something of a permanent cloud over the entire situation for a while now, and forcing many lay individuals to simply tune out of the discussion.

In any case, last week we saw the central bank perhaps take the most drastic steps yet, in its efforts to keep the economy afloat: implementing a new exchange rate regime, basically the crawling peg, that the IMF had recommended as the safest one for the country to adopt, while also retaining some room to manoeuvre. Not that it was ever too quiet, or comfortable. Even just the introduction of the Crawling Peg Mid-Rate (CPMR), which is required for the peg, saw Taka endure its most brutal day ever against the Dollar, falling by Tk 7 to set the exchange rate at Tk 117 for $1. Bangladesh Bank maintains its intention was to set the CPMR at a point which reflects the market rate.

The new method aims to stabilise the value of the taka against the US dollar, and to return to the days of a single, unified exchange rate for taka against dollar. The crawling peg gives the banks the freedom to buy and sell US dollars at their own rates within that corridor. Now most economists have voiced their opinion along the lines that this could have been done much earlier, had the central bank responded to the same signal elicited by the market for years now.

Taka had stayed firm around Tk 85 to the dollar for over a decade, but started weakening amid increasing pressure on the foreign exchange reserves in the post-Coronavirus period, in the second half of 2022. The local currency depreciated around 28 percent between January 2022 and April 2024, to stand at Tk 110 to the dollar.

Exporters welcomed the decision to introduce the crawling peg - which saw the exchange rate hiked, and probably it will be hiked further in the coming days - as it will make them more competitive. At a time when the government has already started reducing incentives on export receipts in preparation for its much-anticipated graduation from least developed country status in 2026, this was seen as a boost to the exporters. They will do well to remember that they must negotiate higher prices from international retailers and brands, and larger orders in terms of volume of exports, in order to reap the potential benefits of the decision. Unless that happens, the situation may even get worse, before it gets better. Therein lies the new challenge for the Bangladesh economy, and all its stakeholders.