DYNAMICS OF EXCHANGE RATE AND FOREX RESERVES IN BANGLADESH: WAYS TO STABILIZE FOREIGN EXCHANGE RATE

Auteur/ices

  • Md. Abdul Khaleque Associate Professor, Dr., Department of Development Studies University of Dhaka, Bangladesh
  • M. Abu Eusuf Professor, Dr., Department of Development Studies University of Dhaka, Bangladesh
  • Rounak Jahan Associate Professor, Department of Development Studies, University of Dhaka, Bangladesh

DOI :

https://doi.org/10.46827/ejefr.v8i5.1817

Mots-clés :

Remittance, FDI, Forex Reserves, ODA, Foreign Exchange, Bangladesh

Résumé

The exchange rate and foreign exchange reserves stand as pivotal determinants profoundly impacting external and overall economic conditions. A sustained equilibrium in exchange rates alongside robust reserve levels is imperative for managing inflation and fostering favorable trade balances, thereby, bolstering the nation's holistic economic well-being. This study scrutinizes the dynamic interplay of exchange rates and forex reserves in Bangladesh, drawing upon meticulously curated data from Bangladesh Bank and bruegel.org. Methodologically, the investigation relies on rigorous trend and growth models to elucidate pertinent patterns. The analysis unveils a phase of exchange rate stability vis-à-vis the USD to BDT currency pair pre-2022, followed by a marked escalation in recent years attributable to localized currency devaluation. Noteworthy is the trajectory divergence observed between the Nominal Effective Exchange Rate (NEER), demonstrating a downward trend, and the Real Effective Exchange Rate (REER), exhibiting a contrasting upward trajectory surpassing NEER. Moreover, a conspicuous surge in forex reserves is evident until early 2022, succeeded by a precipitous decline to precarious levels. This downturn is ascribed to multifaceted factors encompassing the Ukraine conflict, volatility in oil prices, burgeoning foreign debt obligations of public and private entities, dwindling Foreign Direct Investment (FDI) inflows, and diminished remittances. The governmental response has entailed the adoption of short-term strategies aimed at mitigating exchange rate volatility and preserving forex reserves. While certain measures have proven efficacious, others have fallen short of desired outcomes. In pursuit of exchange rate stability, the central bank has instituted a crawling peg exchange rate regime, complemented by governmental interventions restricting imports to safeguard forex reserves. Achieving equilibrium mandates concerted governmental endeavors to invigorate remittance and FDI inflows, thus fostering a more robust economic landscape.

 

JEL:  F31, G18, O24

 

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Biographies des auteurs

  • Md. Abdul Khaleque, Associate Professor, Dr., Department of Development Studies University of Dhaka, Bangladesh

    Dr. Md. Abdul Khaleque is an Associate Professor at the Department of Development Studies, University of Dhaka. He has completed his PhD in Development Studies with a particular focus on water security and poverty with funding support from the School of Geography and the Environment, The University of Oxford under the project REACH. He completed his B.S.S (Honors) and M.S.S in Economics at the Department of Economics, University of Dhaka. His research interests include various development issues, impact evaluation, enterprise development, water security, macroeconomic issues, and so on.

  • M. Abu Eusuf, Professor, Dr., Department of Development Studies University of Dhaka, Bangladesh

    Dr. M. Abu Eusuf holds the position of Professor & Former Chair in the Department of Development Studies at the University of Dhaka. He is the Director of ‘Centre on Budget and Policy’ at the University of Dhaka. He is also the Executive Director of a national think-tank Research and Policy Integration for Development (RAPID). Eusuf is an economist by training. He was awarded a Ph.D. in Development Policy and Management (Development Economics Cluster) from the University of Manchester as a Commonwealth Scholar. He also completed his MA in Development Studies at the Institute of Social Studies (ISS), Netherlands, under the UN fellowship program. The research area includes Property Rights and Land Reform, Financial inclusion, Corporate Social Responsibility, Urban poverty, Social protection, Microfinance, Trade, Poverty, Budget Analysis, and so on.

  • Rounak Jahan, Associate Professor, Department of Development Studies, University of Dhaka, Bangladesh

    Rounak Jahan is an Associate Professor in the Development of Studies at the University of Dhaka, Bangladesh. She was a former Chairman of the Department. She studied for her Bachelor and Master degrees in Economics from the University of Dhaka. She also completed her MA in Development Studies at the Centre for Development Studies, University College Dublin, Ireland. She has published several research articles in reputed journals. Her fields of interest are development economics, rural development, banking and industrial development, trade, etc.

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Publiée

2024-09-18

Numéro

Vol. 8 No 5 (2024)

Rubrique

Articles