B Mirror Report : Bangladesh Bank is collecting excess dollars from commercial banks in order to maintain a stable US dollar exchange rate. The central bank is taking out extra dollars that other banks are holding in order to restore normalcy to the market. The nation’s foreign exchange reserves are growing as a result.
However, businesses, investors, and economists have conflicting viewpoints about this policy. They worry that it could endanger the economy in the long run, even though it might offer temporary respite.
Bangladesh Bank says that entrepreneurs must consider long-term planning when running businesses. As an example, the central bank explains that if a company imports new machinery after being closed for 10 years, it must ensure not only the machinery but also raw materials, production planning, and other preparations in advance. According to the central bank, although there is some relief in the dollar market at the moment, concerns remain over how effectively future pressure from increased demand can be managed.
Bangladesh Bank’s Executive Director and spokesperson, Arif Hossain Khan, told Jago News, “There is no scope to calculate profit or loss from purchasing dollars. This is not a decision where spending money guarantees profit. Rather, investment and policy decisions often have to be taken under pressure from real market conditions.”
Bangladesh Bank does not buy dollars directly from the open market. Commercial banks retain the required amount of dollars and transfer the surplus to the central bank. Banks have a limit on dollar holdings and cannot hold dollars beyond their Net Open Position, said spokesperson Arif Hossain Khan.
He added, “Long-term planning is crucial in business operations. If an institution imports new machinery after remaining closed for a long time, it must ensure various preparations, including raw materials. Although there is some relief at present, questions remain about how the additional demand pressure ahead will be handled.”
When asked whether dollar purchases are affecting the cash market, he said, “Bangladesh Bank does not buy dollars directly from the market. Commercial banks keep the necessary dollars and hand over the excess to the central bank. Banks have a holding limit and cannot retain dollars beyond their Net Open Position.”
A section of businesspeople and investors believes that if the central bank did not withdraw dollars from the market now and the supply of dollars suddenly increased, the dollar price would fall abnormally. This would cause exporters to lose competitiveness, dealing a major blow to the export sector. They fear that when a truly investment-friendly government takes office in the future and investment increases, the question of where the required dollars will come from will become even more critical.
They argue that if the government does not preserve dollars now, sharp fluctuations could occur later, with the exchange rate jumping from Tk 110 to Tk 130 per dollar. Such volatility would be difficult for importers to manage. As a result, both exporters and importers could face severe pressure.
Buying dollars to build reserves becomes a problem only when it is not aligned with the real state of the economy. If done at the right time, it can help bring stability; if done at the wrong time, it can fuel inflation and disrupt market balance, said economist M Helal Ahmed Jony, Research Fellow at Change Initiative.
Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Executive President and Employers’ Federation President Fazle Shamim Ehsan said, “When an investment-friendly government comes in the future, dollar demand will rise. If dollars are not preserved now, the exchange rate could suddenly jump from Tk 110 to Tk 130, which would be difficult for importers to absorb. As a result, both exporters and importers would be affected.”
According to this industrialist, stability is more important than the dollar price itself. To ensure stability, there is no alternative to buying dollars from the market. “The government is doing the absolutely right thing,” he said.
However, economists have taken a cautious stance. They say collecting dollars from the market to increase reserves is part of the central bank’s broader strategy. While it reduces volatility and provides short-term relief in the dollar market, continuing this as a long-term policy could create risks due to the dual impact of dollar management on the economy.
Economist M Helal Ahmed Jony told Jago News, “Buying dollars to increase reserves becomes problematic only if it does not match economic realities. If done at the right time, it can stabilize the economy; if done at the wrong time, it can disrupt inflation and market balance.”
Currently, Bangladesh Bank is purchasing excess dollars available in the market, which are directly added to the reserves. While reserves are rising, dollar availability in the private sector is shrinking. This could make opening Letters of Credit (LCs) more difficult and increase import costs. Economists believe a sustainable solution will come only when a genuinely investment-friendly environment is created in the country.
Former Vice-Chancellor of Jahangirnagar University and economist Dr Abdul Bayes told Media, “Bangladesh Bank is buying dollars not primarily to increase reserves, but to prevent the dollar price from falling or rising excessively. If dollar supply suddenly increases, prices may fall, which would be harmful to remittances and exports. To avoid this risk, the central bank buys excess dollars and releases them when necessary to control prices. This is essentially a two-way intervention in the dollar market.”
He added, “Although reserves are increasing as a result of dollar purchases, the real question is how these reserves are being used. If imports, investment, and production were rising simultaneously, reserve growth would be meaningful. But currently, economic growth is stagnant. One could say fat is increasing, but there is no exercise.”
According to Professor Bayes, “While keeping the dollar price stable is effective in the short term, the benefits of this policy will remain limited in the long run unless investment and genuine dollar demand are created. Dollar instability poses the greatest risk to remittances, exports, and imports. For now, the central bank’s goal is to keep the dollar market in a ‘stable zone.’”
