Saturday | 11 January 2025 | Reg No- 06
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Saturday | 11 January 2025 | Epaper

Let BDT-USD exchange rate float freely

Published : Monday, 19 December, 2022 at 12:00 AM  Count : 330
Nazmul Karim
Managing exchange rate is becoming an important issue globally and Bangladesh is no exception to this. The country is already facing trouble in fixing rates in local currency against dollar. The regulatory authority Bangladesh Bank though once was in a policy of holding exchange rates artificially, now it is in the authorized dealers� hands that rates are now almost free floating. But despite that it is yet to be fully floating as there are different rates among export proceeds, remittance and in bank rates.

Though there are various measures of stabilizing exchange rates, the problem is rising in opening letters of credits and remittance in legal channels is being bypassed in many cases. Few days back the policy makers were insisting on introducing market-based foreign currency exchange rates. They were saying today or tomorrow, we�ll have to go for market-based trading of foreign currency.

After hectic meetings with the regulatory authority, the authorized dealer banks sat on this issues and they devised exchange rates of buying export proceed per dollar at Tk99 and for remittance at Tk108 per dollar that were effective from 12 September as part of an effort to curb volatility in the country's foreign exchange market.  As per buying rates the selling rate was devised by weight average rate plus Tk1 that is Tk104.5 for a temporary period and after a few days it was revised for two times and now the export proceeds are bought at Tk100 and remittance at Tk107.

This was a relief while the Bangladesh Taka-US Dollar exchange rate hiked an all time record of Tk121 in the open market in August and is currently being sold at around Tk110. The price of the dollar in the banks rose to Tk107, although Bangladesh Bank was selling at Tk95 in a short span of time from Tk85. But still now the bankers and economists say the dollar should be in full free floating and there should not be different rates.

The country�s main dollar sources are export and remittance and after the first couple of months in the running financial year of negative trend the inflow of remittance and export earnings were in upward trend. That single month export hit the $5 billion mark in November and at the same time remittance also increased. It was expected that with rising dollars there will be no crisis for foreign currencies but in fact the situation is still unchanged that local exporters and manufacturers can�t open letter of credits due to conditions of keeping LC margins.

Exporters need to buy dollars at higher prices and they find dollar rate for them is discriminatory and fear that the capping of dollars at two different exchange rates for remittances and export proceeds might give rise to money laundering through under-invoicing.

In fact, many exporters may choose to bring export proceeds home in the form of remittances and enjoy cash incentives as well as additional exchange rates. The existing exchange rates devised by Bangladesh Foreign Exchange Dealers Association or Bafeda are a peculiar system and it would be difficult to maintain in the long run. It would be difficult to enforce uniform rates set by Bafeda as it is a peculiar system. Some banks will have higher remittance inflows, while others will have more export encashment, then the LC settlement rate of the ones whose remittance is more will be higher. Consumers tend to lean towards where they get a lower rate.

There is a gap of Tk7 between remittance collection and export bill encashment. As a result, exports are at risk of under-invoicing. If exporters do under-invoicing and bring their proceeds as remittances, they will get Tk7 more against each dollar and another Tk2.5 as an incentive. It may create a new way of under-invoicing and money laundering will take place through export under-invoicing.  The dollar began climbing in mid-2021 due to a supply crunch of the currency. The crisis went deeper towards March this year, prompting the central bank to come up with several measures to curb the dollar�s unprecedented gains. In a meeting in May, the BAFEDA and ABB agreed to fix a ceiling to set a uniform interbank dollar exchange rate to ease the situation. On Jun 30, Bangladesh Bank reintroduced the floating rate and regularly devalued the taka against the dollar while selling large amounts of the currency to meet the demands. The banks were supposed to hold discussions to propose a dollar exchange rate under the supervision of the central bank.

However, BAFEDA did not follow up on some decisions after forwarding a proposal at the end of May. As the dollar crisis deepened, the banks halted dollar transactions to make an extra profit and the interbank dollar market lost activity. The banks in crisis bought dollars from other banks at higher prices to settle import payments, while sometimes looking to clients to come up with the currency. This put the customers at the receiving end of the crisis. To avoid such various rates and money laundering it is wise to keep dollars in its own way and the market will decide the rates. Feeling this pulse the Bangladesh Bank is likely to set a new exchange rate that may cross Tk100 against each dollar by the end of this calendar year.

The BB's move comes in line with the suggestions from the International Monetary Fund (IMF) team that visited Dhaka recently, to reach a uniform rate of dollar on the market. Currently, the BB is selling dollars to the banks at Tk98 each, which is planned to be revised upward to cross Tk100 each by December.

Amid all this turbulence in the exchange market, the BB should further lessen the rate gap. Being an importer as well as exporter, I feel the need to ease the dollar exchange rate. The existing tightening move is badly hurting our business. For my ceramic industry in particular I can say it should be a single exchange rate. In the end I can say it is positive that slowly we are introducing a uniform market rate and I hope in the coming days there will be a free floating exchange rate and the market will decide the rate.
The writer is managing director, Bridge Chemie Limited








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