The Bangladesh Bank’s measures to stabilize the forex market over the past year have faced significant challenges. Efforts, including multiple exchange rate mechanisms, penalties for banks selling dollars at higher prices, and a new price mechanism for forward trading, have not achieved their intended goals. These measures have led to confusion and uncertainty among bankers, affecting the stability of the foreign exchange market.
The central bank’s frequent changes in decisions and issuance of verbal instructions have created a lack of consistency and eroded confidence in the financial market. The policies have also inadvertently diverted remittances to informal channels, worsening the dollar crisis and reserve erosion.
The recent decision to penalize banks for selling dollars at rates higher than those set by a bankers’ platform has been reversed, further highlighting the lack of a clear and consistent policy approach. The IMF has expressed concerns about the exchange rate mechanism and the role of the private platform, Bangladesh Foreign Exchange Dealers Association (BAFEDA), in setting rates. These issues, coupled with conflicting policy decisions, have added to the challenges faced by banks in the country.
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