The war raging in Europe amid the recovery from the coronavirus pandemic caused Bangladesh to pay a record $83.68 billion for imports through letters of credit, or LCs, in the fiscal year that ended on Jun 30, and 25 days later the interbank exchange rate of the US dollar has hit record Tk 94.7.
The Russia-Ukraine war has caused price rises globally while bolstered economic activities amid the recovery from the pandemic’s effects have pushed up domestic consumption and demand, leading to high import costs.
As the demands for foreign currencies for settling LCs increased, the Bangladesh Bank had no choice but to constantly sell US dollars and reduce the value of the local currency despite rising pressure on the foreign currency reserves. Exports and falling remittances have not been enough to fill in the widening gap created by imports.
In August last year, the foreign exchange reserve stood at $48.02 billion, the highest in the country’s history. On July 20 this year, it fell to $39.67 billion, the lowest in two years.
On Jul 21, the interbank US dollar rate stood at Tk 94.45, compared to Tk 84.80 on Aug 1 last year.
The central bank on Monday sold $132 million to the banks at Tk 94.7 each, up by Tk 0.25 from Sunday, said the Bangladesh Bank’s spokesperson Serajul Islam.
The sale of the US dollar led the reserves to shrink further to $39.61 billion.
Bangladesh adopted a floating exchange rate system in 2003 to effectively integrate with the global market.
However, the central bank imposed tight control on the dollar exchange rate due to the massive depletion of the greenback it has in its coffer.
Finally it reintroduced the floating exchange rate system in early June as part of efforts to stop the rapid devaluation of the taka and save its foreign currency reserves, but the taka’s fall has continued with no sign of an end to the volatility in the international market.
The taka-dollar exchange rate on the open market had surpassed previous records in May, when it was Tk 102 per dollar in local markets. In the following months, the price of a dollar somewhat steadied and hovered around Tk 97 to Tk 98 due to an increased supply of foreign banknotes.
But, it only took a week for the currency to blow past all previous records. Traders at money changers in Dhaka said that they are now facing a shortage of dollars.
They sold the dollar at Tk 105.3 on Monday and turned away many customers due to the shortage.
The open market price of the dollar has also increased in banks. Social Islami Bank and NRB Commercial Bank sold dollars at Tk 102, whereas Meghna Bank sold the currency at Tk 101, according to data from the bank and central bank websites.
All bank branches that are registered for the dollar exchange have been selling dollars at prices over Tk 99, according to central bank data.
This led businesses to complain about the rate to the central bank. In a letter dated Jul 21, Chattogram Chamber of Commerce and Industry president Mahbubul Alam wrote to Bangladesh Bank Governor Abdur Rouf Talukder, seeking measures to enforce its directives on keeping the dollar price down.