Foreign Currency

New Age | Bangladesh\’s gross forex reserve dips to $19.89b

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A file photo of Bangladesh Bank headquarters in Dhaka.

The gross foreign exchange reserves in Bangladesh, according to the International Monetary Fund guidelines, dropped to $19.89 billion again on Wednesday.

According to Bangladesh Bank data, the foreign exchange reserves reached the current level on the day from $19.91 billion on March 31 and $21.86 billion on December 28, 2023.

However, according to Bangladesh Bank’s conventional valuation, the foreign exchange reserves were reported as $25.3 billion on that day.

The reserves had dropped to $19.13 billion on December 6, 2023, but rebounded to $21.74 billion on January 4 after receiving $689 million in loans from the International Monetary Fund and $400 million from the Asian Development Bank.

The reserves, however, started declining again thereafter.

This decline in Bangladesh’s foreign exchange reserves is primarily due to a significant dollar shortage in the market.

The shortage has compelled the central bank to continue selling dollars to banks from its reserves.

The reserves significantly depleted as import payments of $1.29 billion were made to the Asian Clearing Union for January and February.

The Asian Clearing Union is a payment settlement forum whereby the participants settle payments for intra-regional transactions through participating central banks on a net multilateral basis.

Payment obligations of transactions among Bangladesh, Bhutan, India, Iran, the Maldives, Myanmar, Nepal, Pakistan and Sri Lanka are settled through the ACU payment system.

Apart from the payment obligations to ACU, the ongoing sales of foreign currency to the country’s banks by the central bank contributed to the reduction in the country’s foreign exchange reserves.

The central bank has been selling dollars to commercial banks, with more than $30 billion sold over the past 32 months.

This included $9.7 billion allocated to banks in July-February of the financial year 2023-24, $13.5 billion in FY23 and $7.62 billion in FY22.

The country’s financial sector is facing a severe dollar shortage.

To address this, the government and the central bank have implemented measures to restrict imports, especially luxury and non-essential items.

Due to a liquidity crisis in the market and a sharp rise in government treasury bonds, banks are providing about $2 billion to the central bank in exchange for local currency.

The dollar rate has been set at Tk 110 a dollar by the Association of Bankers, Bangladesh, and the Bangladesh Foreign Exchange Dealers’ Association.

According to IMF guidelines, the net reserve is below $17 billion.

The Bangladesh Bank follows the IMF’s BPM6 for calculating gross and net international reserves.

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