The strongest dollar we have witnessed in a generation, maybe more, continues to burn up currency markets, disrupting growth in emerging or developing economies like ours, and upending everything from the cost of a vacation abroad to the profitability of multinational companies. It is also making some central banks, or at least their currency departments, very nervous. In Bangladesh, despite a slew of measures being rolled out by the central bank over the entire summer to try and gain a foothold on the currency, taka slid to 120 against the dollar this week in the kerb market.

That represented a Tk 25 differential between the inter-bank exchange rate set by Bangladesh Bank this week which was Tk 95 - an unprecedented gap that Shapla Chottor has been helpless to contain. We now have them clamping down on authorised dealers of foreign exchange, including banks, in a fairly drastic step to control the market.

Licences of five foreign exchange dealers have been suspended, nine have been shut down while another 42 of these dealers have been served with show cause notices, out of a total 80 that were raided, for violating rules guiding trade in foreign exchange. More worryingly, it was learned that the central bank has ordered the removal of the treasury department chiefs of six banks - 5 locals, and 1 foreign bank -after finding evidence of bending the rules to make higher profits in the dollar trade against them. The treasury chiefs also contributed to inflating the dollar rate by preserving more dollars than they needed or the rules allow, claimed the central bank.

Forex dealers in Bangladesh can hold on to a maximum of $25,000 (in foreign currency) at the close of each business day. Any foreign currency holdings beyond this limit has to be deposited in the foreign currency account held with the respective forex dealer's bank. Also, the balance of the account cannot exceed more than $50,000 at any point of time. Interestingly, the dealers whose licences have been suspended were found holding unauthorised amounts of not just foreign currency (dollars, to be precise), but also local currency (taka).

Where the dollar will eventually settle is obviously a very popular parlour game around the world right now. But make no mistake: the stakes are undoubtedly far higher for us in the global south. The dollar's appreciation, that against taka was estimated at just over 9 percent in the first six months of the year, can erode some of the hard-earned gains from economic growth that Bangladesh has experienced. The fact that it has come at a time when the country has just learned to embrace the concept of foreign debt, in the period leading up to graduation from the LDC list, poses as one more policy challenge for the decade till 2031.

According to an influential paper by the economists Barry Eichengreen, Ricardo Hausmann and Ugo Panizza, dependency on foreign-currency borrowing - and dollar-denominated debt in particular - tends to handicap developing nations, making it next-to-impossible for their domestic policy makers to use monetary and fiscal policy when exchange rates turn against them. They call it the 'Original Sin' of borrowing in foreign currency. Now it remains to be seen just how much of a price we pay for ours in the years ahead.

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