Dollar price to become more market-oriented, notification expected today

Bangladesh Bank is taking initiatives to make the dollar price more market-oriented from the beginning of the new year. To achieve this, the central bank will collect data on dollar purchases by noon every day. Based on this data, the intermediate price of the dollar will be published.

Bangladesh Bank plans to impose fines on those buying and selling dollars at prices higher than the announced rate. The fines may range from 1 million taka to 5 per cent of the transaction value.

Additionally, the central bank will auction dollars when selling from reserves, a shift from the previous practice of selling only to preferred banks and traders.

The International Monetary Fund (IMF) has recommended that the dollar price be made market-oriented by this year. As part of this initiative, Bangladesh Bank held a meeting with the top 25 foreign exchange trading banks yesterday.

The central bank’s plans were discussed during this meeting and may be issued in the form of a notification by today. The meeting was attended by managing directors and treasury heads of various banks, with top officials, including Governor Ahsan H Mansur, representing the central bank.

In the meeting, the governor emphasised that those buying or selling dollars at higher prices than announced must face penalties. He highlighted that dollars from remittances and export earnings should be purchased at the same price, with up to 2.5 per cent additional money added to the base rate of 119 taka. Dollars can be sold at a price up to 1 taka higher than the purchase rate.

Meanwhile, central bank spokesperson Husne Ara Shikha stated in a written message yesterday that Bangladesh Bank has already set a maximum exchange rate of 123 taka per dollar for remittances. Exchange rate monitoring has been implemented through a digital dashboard.

The dollar market has been unstable for about two and a half years. During this period, the price of the US dollar has risen from 85 taka to 120 taka. Under the Awami League government, Bangladesh Bank conducted various experiments to stabilise the dollar market.

However, these measures failed to resolve the crisis and, in some cases, exacerbated it. To keep the market stable, Bangladesh Bank sold dollars from its reserves, but this approach caused reserves to shrink by half.

Following the change in government, the new governor, Ahsan H Mansur, stopped selling dollars from the central bank’s reserves. Instead, a fixed price of 120 taka per dollar was introduced, with a fluctuation margin of up to 2.5 per cent.

This policy has brought greater stability to the dollar market. Expatriate income has increased, and the reserves, after halting their decline, are now growing again.

Reports suggest that the central bank is planning to make the dollar price fully market-based in the future. As part of this initiative, it held a meeting with banks yesterday to adjust dollar prices to be more market-oriented.

It was revealed in the meeting that on a single day, some banks sold dollars at prices ranging from 120 taka to 127 taka. Such inconsistencies, according to the central bank, are unsustainable.

Officials emphasised that the dollar price should be uniform for buying remittances and export income and stressed the need to reduce the number of intermediaries in dollar transactions.

To enhance oversight, the central bank plans to collect daily information on dollar transactions from banks starting in the new year. A new data collection framework will be developed, enabling the determination of an intermediate price.

Bangladesh Bank will closely monitor whether transactions adhere to the announced rates. If a dollar shortage arises for meeting import obligations, the central bank will sell dollars from reserves, but only through auctions.

Bank officials have noted that the dollar market has stabilised significantly since the new government assumed office. However, they suggest that allowing the market to determine prices under strengthened supervision would yield more sustainable results.

Sheikh Mohammad Maruf, Managing Director of Dhaka Bank, told Prothom Alo, “The dollar market has stabilised to a large extent after the change of government. Last week, due to additional import payment demands, the price rose to 126-127 taka. However, it has since returned to previous levels. The market depends on demand and supply. If this trend continues, the price will become more tolerable, preventing excessive profits through dollar hoarding.”

Meanwhile, the central bank's spokesperson outlined several reasons for the ongoing instability in the dollar market.

Husne Ara Shikha, in a written statement, explained that various loan repayment schedules in December have significantly increased the demand for dollars.

Additionally, to meet IMF targets, Bangladesh Bank has recently stopped selling dollars, which has further reduced the dollar supply in the interbank market.

The situation has been exacerbated by the downgrading of Bangladesh's credit standards, which has strained relations between foreign and domestic banks.

As a result, the opening of letters of credit has been disrupted, the deferral of import bill payments has become difficult, and the inflow of offshore banking loans has been hindered.

The written statement also highlighted that Bangladesh Bank's notification regarding the mandatory repayment of foreign debts by December has placed further pressure on the dollar market.

Furthermore, monopolistic practices and the role of middlemen in collecting remittances have destabilised the exchange rate. Instability in the dollar market has also been driven by a mismatch between the demand and supply of dollars within commercial banks.