Home Business The dollar crisis and the devaluation of reserves have come up again and again in the discussion

The dollar crisis and the devaluation of reserves have come up again and again in the discussion

by Afonso
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The dollar crisis was discussed for years. After a year and a half of the beginning of the Russia-Ukraine war after the corona epidemic, the instability of the currency, the main currency of foreign transactions, has not decreased, which is still ongoing.

Many commercial banks are also unable to open letters of credit (LC) for imports due to lack of sufficient dollars. As a result, importers are in the most danger. This has led to an increase in commodity prices in the domestic market, which is still at an uncomfortable level. It has a direct impact on public life.

The situation is so bad that inflation in the country was 9.93 percent in October. In the same period last year, which was 8.85 percent. However, in order to control the dollar crisis, Bangladesh Bank imposed several restrictions on imports from the middle of last year.

dollar crisis

The value of the dollar in a country depends mainly on the demand and supply of dollars. If the demand for dollars exceeds the supply, the price of the dollar will rise. And if the demand for dollars is less than the supply, the price of the dollar will fall. Due to the disruption of this balance, the price of the dollar started to rise abnormally this year. Even at one point its exchange rate went up to 120 rupees. The price has gone up to Tk 127 in open market or curb market.

In October 2021, the price of the dollar remained stable at 84 taka 80 paisa in the interbank currency market. But from the middle of 2022, this market started to become unstable. In 2023, the situation took a worse shape. On May 16, a record devaluation of the rupee against the dollar took place in a single day. In one day, the price of rupees fell by 80 paise. After three rounds of price cuts in the same month, this major price drop has a major impact on the domestic market. Currently, the dollar price is at 110 taka, but the situation is still not stable.

According to the central bank, the price of the dollar in the country has increased by about 28 percent in the last year and a half. The supply of dollars comes mainly from export trade earnings, particularly from garment exports and remittances.

Reduction in the size of reserves

Bangladesh Bank’s foreign exchange reserves are gradually decreasing. According to International Monetary Fund (IMF) estimates, the current reserves are 19.40 billion US dollars. But in 2021 it reached a record 48 billion dollars.

According to internationally accepted norms, a country should generally have three months of foreign exchange reserves in its hands to meet its liabilities. A major part of this deposit is import expenditure and foreign debt. Bangladesh currently spends an average of 6 to 6.5 billion dollars a month on the import of various products. As such, the current level of reserves is not alarming, but it does signal risk.

Basically, the reserves increased due to the reduction of imports during the Corona period. Later, the import was normal, but due to the shock of Corona and the war in Ukraine, the cost increased due to the increase in the policy interest rate of the central bank of America. Its impact is directly on the reserve and dollar prices. At the same time, the remittances sent by expatriate Bangladeshis from outside the country also increase in a negative trend. Huge dollars remain unaccounted for especially when remittances are not sent through legitimate channels. There are also allegations of money laundering through overinvoicing during importation. Export income also decreased.

According to the central bank, the price of the dollar in the country has increased by about 28 percent in the last year and a half.  Collected images

According to the data provided by Bangladesh Bank, the amount of remittances decreased by 50 million dollars in November compared to last October. Remittances of 193 million dollars have arrived in the country in November. About 198 million dollars came in October. However, the amount of remittances has increased in November this year compared to November last year. In November last year, remittances came in at $1.6 billion.

All in all, reduction in the amount of reserves, dollar crisis, devaluation of currency – all this is a saga. It has a direct impact on the country’s product market. Especially the increase in the price of imported goods has a direct impact on public life.

From 1983, Bangladesh started using dollar as export and import currency. Earlier, Bangladesh used the British pound as its currency from 1972 to 1983. Currently, 90 percent of Bangladesh’s transactions are done through dollars. And the value of this dollar is determined by the central commercial bank of America Fed.

According to internationally accepted ratios, inflation increases by 1 percent for every 10 percent depreciation of the local currency against the dollar. In the last year and a half, the rupee has depreciated by more than 25 percent against the dollar. As a result, it is understood that how it has affected the country’s market.

It is not possible for anyone to give a clear answer to this question – when will this ongoing dollar crisis in the country end. However, this crisis has already started to be overcome. Bangladesh Bank has assured that the dollar crisis will not be so obvious in the future.



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