Recovery from the 1997-1998 East Asian Currency Crisis: Asian Financial Crisis in order to stabilize their economies, the crisis-struck countries requested bailout packages from the International Monetary Fund (IMF). According to Ardiansyah (2002), Thailand requested for $17.2 billion, Indonesia for $40 billion, and South Korea for $57 billion, from the IMF. In addition, the IMF provided $36 billion to the countries worst hit by the crisis–namely Thailand, Indonesia, and South Korea–to support governmental and economic reform programs (IMF Staff, 1998). For instance, the IMF demanded the Indonesian government to eliminate the subsidies and tax cuts that it grants to the country’s monopolies; and the South Korean government to implement free market reforms and open its market to foreign investment and ownership (Ardiansyah, 2002). These requests of reform were met with an initial hesitation on the part of the authorities, which further exacerbated the crisis by causing declines in the currencies and stock markets (IMF Staff, 1998). Eventually, however, the necessary commitments were made and the proposed reforms were implemented. Apart from the reform programs introduced by the IMF, additional measures were taken by East Asian countries to manage the financial crisis. One of the most remarkable among them is the reorganization of the financial sectors, where many of the ailing banks and financial institutions in the region were shut down (Kim & Haque, 2002). Throughout 1997 and 1998, Thailand liquidated 56 of its 91 financial institutions; Indonesia closed 16 of its commercial banks; South Korea suspended 14 of its 30 merchant banks; and Malaysia restructured its 39 financial institutions (15 were restructured into six anchor groups, and 14 were absorbed by their parent banks) (Radelet & Sachs, 1998; Chotigeat & Lin, 2001). These actions were taken, according to Radelet and Sachs (1998), to minimize the losses that were being accumulated by these financial institutions, as well as to send a strong message that the East Asian governments were determined to implement reforms and restore confidence in their countries’ banking systems. Overall, this strategy helped the East Asian economies recover from the 1997-1998 financial crisis.

How Future Financial Crises Could Be Prevented: Prior to the 1997-1998 Asian financial crisis, Singh (1998) notes, the East Asian economic model was characterized by the following: (1) close relationships between governments and businesses; (2) frequent government interventions through a system of “administrative guidance” (as opposed to formal legislation); (3) long-term relationships between corporations and financial institutions; (4) cooperative relationships between corporations’ managers and labor; (5) governments’ deliberate management and restriction of competition in markets; and (6) strategic and limited integration with the world economy. To overcome the challenges of globalization and prevent crises of this sort, he writes, it is crucial for East Asian countries to redefine their roles as states and strategically reposition themselves. Pang (2000) goes on to describe what the new East Asian economic model should look like. 

The new economic model or developmental state, he writes, should entail the following: (1) the pursuit of market-driven, as opposed to state-centric, development; (2) limited state domination in political, economic, and social life; (3) little to no interference of political affairs with the market; and (4) the preservation of ethnic cohesion and solidarity, built on economic prosperity and equality. In order to achieve this, East Asian states would need to reduce their role as financiers, planners, and producers; increase transparency and public accountability; invest in physical and human infrastructure; and propagate democratic values. There is, lastly, a need for East Asian countries to maximize trade and financial integration with Japan, Taiwan, Australia, the European Union, and North America. In the post-financial crisis era, according to Singh (1998), East Asian countries face a number of policy challenges: (1) restoring the confidence of international investors to resume normal capital flows into the region; (2) ensuring long-term economic growth; and (3) providing immediate aid and assistance to the people who have, as a result of the financial crisis, become unemployed or pushed back into poverty. In order to tackle these challenges, East Asian countries would need to encourage cooperation not only between governments and corporations, but also between labor and civil society organizations. A state of “political unity” needs to be achieved, which would, in turn, ensure the implementation of credible economic policies that are supported across the domestic political spectrums. The developing countries in Asia have many lessons to learn from the 1997-1998 financial crisis, and should harness this knowledge to better position themselves in the 21st century world economy.

The foreign currency management-Bangladesh story: Examination of a larger number of research papers on the currency crises across the globe with historical evidence, found that Bangladesh suffered from the negative current account balance since the independence in 1971 excepting couple of years since last couple of years. The country never faced the situation of currency crises in line with the generic and theoretical definition of the currency crisis. In the earlier section, we have explained on the theory, currency crises models, indicators, warnings indicators, leading indicators, traditional approach, recent models, review of empirical literatures on indicators, indicators, various approaches and their indicators of currency crises. The currency crises in the emerging market economies-causes and consequences of Asian financial crises, revisiting of Asian crisis, recovery, and path for going forward. In case of Bangladesh, the country has no record of currency crisis in the last 50 years of independence. However, the impact of economic liberalization with globalization Bangladesh become the part of global economic and financial system. Meantime, Bangladesh become second largest player of ready-made garment next to China thus the country import and export business is playing crucial role in augmenting exports proceeds and making payment for imports.  

Imports:  In September, October, November and December, 1977, April, June and November, 1978, January, February, April and August, 1979, data of imports exceeded 90 percentile of the observations when exchange rate was pegged to British Pound Sterling. In addition, the data also exceeded 90 percentile of the observed data in March, May, June and July, 1980, and October, 1981, when exchange rate was pegged to a basket of currencies with Pound as the intervening currency. Bangladesh moved towards another exchange rate regime in 1983. Exchange rate was pegged to a basket of currencies with US Dollar as the intervening currency, instead of Pound. This regime was followed for a relatively long span of time dating 1983-1999. Data of imports exceeded 90 percentiles of the observations several times during this regime. In April, 1983, January and August, 1984, February, 1985, June, 1986, October and November, 1987, January and May, 1988, May and October, 1989, September, 1992, October and November, 1994, March, April and September, 1995, and January, 1999, the data of imports exceeded its 90 percentile of observation. From 2003 and onwards, Bangladesh is following floating exchange rate system or in true essence, it is following managed floating system. In February, 2005, and August, 2010, data of imports exceeded its 90 percentile; but in 2011, it exceeded 3 times: in January, February and May.

Exports: Export and growth of an economy are found to be interlinked. But the export base of Bangladesh is extremely narrow both in terms of composition and destination. For instance, readymade garments (RMGs) including both woven and knit, accounted for 77% of total export earnings in Bangladesh in 1999-2000. And country wise, USA, Canada and EU contributed for the market 85% of the export. This combination has made Bangladesh vulnerable to external shocks. Previously, the European ban on import of shrimp from Bangladesh had a severe impact on the industry. Generalized System of Preference (GSP) aided RMG sector of Bangladesh to flourish but contemporary EU crisis may have proven to be a threat to Bangladesh.

Terms of trade can be explained as the share of export earnings in import payments. It steadily increased from 31% in 1981 to 67% in 2000. Data of terms of trade fell below its 10 percentile in quite a few times. When Bangladesh adopted pegged exchange rate to a basket of currencies with UD Dollar as the intervening currency reserves fell below its 10 percentile in February, March, May, July, August, September and November, 1985, October, November and December, 1989, January, February, March, April, May, June and July, 1990, January, March, April, May, June and July, 1996. In the era of floating exchange rate regime from 2003 and onwards, Bangladesh experienced the data of reserves lower than its 20 percentile in November, 2005 and November, 2011.

There has been great excitement and much commentary on recent developments of the Bangladesh economy. This is the first of three articles on these issues (Forest Cookson 2022). This article examines the changes in the balance of payments. The second article deals with exchange rate management and outlook through FY25. The final article deals with three long run methods of balance of payments adjustment. In particular three developments have attracted attention: (1) The preliminary estimate for GDP growth for FY22 was 7.25%.  The strong growth arose from the continuing recovery of the manufacturing sector. (2) The sharp rise of the current account deficit of the balance of payments, that over the first nine months of FY22, increased to -$14.1 billion from a deficit of -$100 million in the first nine months of FY21.  (3) The inflation rate has risen above 6% for five consecutive months. Common opinion is that this underestimates the inflation rate. As 5 sub sectors command 92.6 percent of the total export earnings. Tens of dozens of other products make just 7 percent or little more. However, among those commodities and products, significant earner is shrimp, fishes and engineering products. Iron steel, engineering equipment’s and electric products performed well. Govt has also set a, close to, billion dollar annual earning target for this subsector. Almost 75% of the dollar earned from Exporters are used for payment of their Back-to-Back L/C at the prescribed BC Selling rate (Taka 94.5 per dollar). Banks buy rest 25% from the exporters at a negotiated rate which is higher than the BC Selling rate (on an average around Tk.2/- per dollar higher). This amount (25%) is relatively small for banks. 

Large amount of dollar comes from inward foreign remittance. Banks have to compete with hundi market to keep the country’s inward foreign remittance at last year’s level. As such banks offers Tk.110-111 per dollar to the exchange houses. Now if we make an average of buying prices of dollar (25% of exports and 100% of inward foreign remittance), it comes to Tk.106-108 per dollar. However this rate will be less for these banks which have higher export than remittance. But those banks are not able to open import L/Cs due to dollar shortage. Large amount of dollar comes from inward foreign remittance. Banks have to compete with hundi market to keep the country’s inward foreign remittance at last year’s level. As such banks offers Tk.110-111 per dollar to the exchange houses. Now if we make an average of buying prices of dollar (25% of exports and 100% of inward foreign remittance), it comes to Tk.106-108 per dollar. This may be achieved by arresting hundi specially the digital hundi which is of around same size of formal channel. At this moment the selling price of dollar is totally determined by the rate of inward foreign remittance. This can be stabilised by temporary capping the rate of inward foreign remittance offered by the banks. “the digital hundi which is of around same size of formal channel.” Striking estimate and comment on the BB, MoF, MoC all should work on it. Policy makers need to pay full attention, work with due diligence & resolve issues sooner to avoid a likely crisis.

Calculated Actions of the Bangladesh Government:  Bangladesh has sought a $4.5bn loan from the International Monetary Fund, the country’s leading newspaper reports, joining South Asian neighbours Pakistan and Sri Lanka in seeking help to cope with mounting pressure on their economies. In the first 11 months of the fiscal year that ended on June 30, imports jumped 39 percent but exports grew only 34 percent. Remittances from overseas Bangladeshis fell 5 percent in June to $1.84bn, the central bank said, as many migrant workers lost their jobs because of the COVID-19 pandemic and many of them could not get home because of the travel disruption it caused. Economists say the Bangladeshi taka has effectively slid against the US dollar by approximately 20 percent in the past three months. Austerity measures: Bangladesh’s financial position has also been under pressure by unprecedented floods in the northeast, inundating the homes of millions of people and causing nearly $10bn in damage, according to government estimates. Elsewhere in South Asia, Sri Lanka, facing its worst economic meltdown in seven decades, is currently in negotiations for an IMF bailout.

How deep is the crisis comparison with Pakistan, India and Sri Lanka: Bangladesh is running with parliamentary democracy applied for the IMF support with good and robust sustainable development   indicators for climate facility. The foreign exchange reserve with 5-6 months imports bill payment with export lead supported by positive workers remittance flow the Indian figure is USD 640b. Foreign investment in stock market are bought by the local investors which is a good that could a threat to currency pressure if taken to foreign country.  In Bangladesh the inflation figures ranges from 7.5-10 percent. Bangladesh Taka is getting weaker from 85-107 against USD in the recent time compared to Pakistan Rupee against 1 USD/per Pak rupee 230. On the other hand, Pakistan has foreign exchange reserve for 5 weeks import bill payment which is in danger level. Bangladesh current account negative balance stands at 17b USD. Bangladesh has easy credit facility from USSR, Japan, World Bank, ADB, JICA and others on long term basis with lower interest. Economists, considering the current economic situation consider, in terms of different economic parameters India at the top, Bangladesh in the second, Pakistan in the third, and the worst position in Sri Lanka as crisis-hit country in the south Asia.

IMF support to Bangladesh, India, Pakistan and Sri Lanka-History: The IMF support is utilized in stabilizing macro-economic management of its member countries. In the southeast Asia, Pakistan is ranked as IMF addict country after it birth as independent nation. Pakistan economy was better than India immediate after 1947.  Pakistan availed IMF support 1958-2022 for 22 times in 66 years complying with IMF conditionalities. Sri Lanka between 1965-2022 at 15 times. Again in 2022 the negotiation is going on at the ongoing severe financial crises. Bangladesh took support from the IMF first in 1974 and continued up to 2012 in 10 times 5.6 years per bailout. From 1957-1991, India availed IMF support USD 2.8b in 6 times bailout in 65 years, 1 bailout every 11 years.   

It seems that currently exchange rates are managed on an ad-hoc basis without having clear targets or objectives. However, this management can be rated as good as the exchange rate remains very close to its equilibrium as warranted by economic fundamentals. Certainly there is scope to improve exchange rate management under a managed floating regime. There are at least three channels identified in this study by which exchange rate instability is transmitted to the domestic economy. 

(i) Pass-through (inflation) effect: A high pass-through coefficient is estimated for Bangladesh Taka. A one percent change in international prices translates almost 100 percent of that change into domestic prices. Since Bangladesh’s trade is dominated by imports, a depreciation of taka easily translates inflation into the domestic economy. This high exchange rate pass-through is also likely to increase external debt burden. (ii) Competitiveness effect: Although Bangladesh achieved average competitiveness during the period 2000-2008, it is not stable. Competitiveness against European markets is unstable, and since the overall REER moves in tandem with the real Euro, it is very likely that it would destabilize trade relations with other countries. Unstable euro already hurt exports to the European Union. Regarding the long-term determinants of the REER, an increase in net foreign assets leads to REER appreciation, that is, the loss of international price competitiveness. An improvement of terms of trade works in favor of REER depreciation because of the substitution effect due to increase in import prices. (iii) Domestic credit effect: This is an indirect channel through which exchange rate is affected in Bangladesh. An increase in domestic credit causes the exchange rate to depreciate or the foreign reserves to deplete or some combination of the two, leading to exchange market pressure. It is observed that sterilized intervention causes extra pressure in the foreign exchange market. 

Note that there is no simple formula for exchange rate management to achieve two important goals of exchange rate management, such as competitiveness and price stability, simultaneously (Ohno, 1999). In the absence of a solid consensus on the proper target of exchange rate management, we propose to adopt the following pragmatic policies: Stabilization of REER: In normal times the exchange rate should be managed so as to stabilize overall competitiveness. For this purpose, the REER index, properly constructed to measure the average competitiveness of the tradable sectors, should be constantly monitored. Bilateral real exchange rate of Euro must be stabilized. To stabilize the REER as well as the RER of Euro, adjustments must be made against movements of other currencies as well as of inflation differentials. This can be accomplished either by a prescribed formula or more informally through timely corrections. REER basket: Currently there are eight currencies in the REER basket. Since Bangladesh’s commodity trade is dollar-denominated, we propose to create a REER basket of four major currencies including the US dollar, the euro, the UK pound sterling and the Japanese yen with proper weights. This kind of basket would be easier to manage and monitor. Although trade with Japan is not significant, Japanese yen should be included because it matters for debt burden, official development assistance (ODA) and grants. Crisis management: Bangladesh has not yet been faced any currency crisis, and therefore the capacity of exchange rate management has not been tested yet. With gradual economic development, shocks such as sudden shifts in FDI, export demand or the terms of trade, large business swings, significant resource discovery (or loss), major natural disasters etc. may occur. In that case a trigger mechanism needs to be adopted for additional adjustments. On the other hand, in the face of a currency attack or other severe financial turmoil in the region or in the global economy, REER stabilization policy may be suspended temporarily to minimize contagion, credit crunch, reversal of capital flows etc. However, during a crisis or global economic meltdown, it is better to stabilize the NEER instead of the REER when other trading partner currencies are fluctuating against each other. Accumulation of Reserves: To maintain managed floats, Bangladesh needs to accumulate a sufficiently large stock of reserves. 

Bangladesh has reserve accumulation already proceeded beyond the optimal point. The stock of international reserves stood at USD 48billion in 2022 (May), which can afford hardly 5.5 months’ import payments. Since the standard practice is to maintain international reserve for 3-months import payments, current reserve position has met the necessary condition, but it is not sufficient. For maintaining stability in the foreign exchange market, it is necessary to accumulate additional reserves. In this context, the management of capital inflows is very important for avoiding any crisis. Since maintenance of large stocks of reserves is a costly activity, exchange rate stabilization policies should be based on frequent and small adjustments rather than large and rare ones. Institutional Development: The foreign exchange market of Bangladesh is in an embryonic stage and thin in terms of daily transactions, which is USD 32.70 million on average. Currency forward market and other derivatives are absent. Bangladesh Bank still controls the market by following net open dollar position of commercial banks. However, if the economy embarks on a middle-income growth path, the market will need to expand and forward transactions will need to be entertained. Therefore, to reap the maximum benefits of the managed floating regime, there is no alternative other than building institutions and bringing efficiency and depth to the foreign exchange market. Particularly, it is necessary to develop inter-bank bond markets as well as capital markets with further financial liberalization. 

This study analyzes currency crisis through literature review at the international level East Asia and of Bangladesh. When Bangladesh is under a floating rate regime in a comprehensive manner. It analyzes both the behaviour of the nominal exchange rate and the real exchange rate. Although Bangladesh was committed to maintain a freely floating regime, our findings suggest that its exchange rate policies were not consistent with the characteristics of freely floating regime. Generally speaking, Bangladesh pursues a managed floating rate regime. Given the thin foreign exchange market, high exchange rate pass-through and exchange rate shocks (exchange market pressure), it appears to be difficult for Bangladesh to maintain a freely floating regime. Bangladesh Institute of Development Studies (2009) study finds that the REER depreciated around 20 percent from the year 2000 in an unstable fashion. One of the sources of REER instability is the real euro, which has served to destabilize trade relations with other major partners. The country, since its birth has the record of facing currency crises in 1973 oil crisis, 1997-98 East Asian Financial Crises, and facing the current currency crisis routed from COVID-19 including Russia-Ukraine war which is turning into a full scale a currency war.  The estimated export demand functions reveal a positive and negligible but significant effect of REER volatility on exports, indicating that more positive impact of the REER on exports would have been achieved with a stable REER. Given the vulnerable financial system, this study suggests that it is better for Bangladesh to continue a managed floating regime with frequent and small interventions. Simultaneously, Bangladesh Bank needs to work on developing mechanisms for inflation targeting policies, ensuring efficiency in the financial system, and building necessary institutions in order to manage exchange rates efficiently. Maintaining short-term stability and medium-to-long term flexibility should be the general objective of exchange rate management policy of Bangladesh. In the recent development of world economic problems Bangladesh authority is keeping close watch on the developments and signals from the prevailing economic impact routed from the crises both internationally and locally and take remedial actions.    

Establishing discipline in currency management: In the absence managing uniform system of managing exchange rate there exists many rates. The Central Bank maintains official exchange rate the State-Owned Banks follows the rate in case of government transactions in case exhausting the quota they buy from other banks at higher different rates. The private banks also follow similar practices as State Owned but buys at different rates in case of diminished quota of foreign exchange. There are approximately 750 money changers (250 are said to be authorized and 500 are unauthorized) who applies different rates obviously higher than central bank and commercial bank’s rates. Moreover, in the more than 61 banks in their foreign exchange branches would be 1200 branches (10% of total branches), if each foreign exchange branch overage has 5 brokers, then 6000 brokers are active in the market dealing in different rates most of them are unauthorized foreign currency dealers who buy and sale foreign exchange different rates higher than the banks apply. Given all these, one can conclude that there exists multiple exchange rate in Bangladesh market where the scope of currency manipulation is high. Time has come to bring uniformity of operators should come to a win-win ground by imposing restrictions on the illegal operators in the foreign currency market to stabilize. Critics say that most of the illegal brokerage houses are either owned by managers of the branches or directors PLCs, Share Brokerage Houses, and private limited companies; Banks, NBFIs, Insurance Company directors officially or unofficially (benami) taking advantage of weakness of regulatory institutions working in the corporate gatekeeping job.  There should be expert committee with specific terms of reference to reform the conflicting issues to be resolved. 

Boosting exports: Current export from Bangladesh need to boost up by discovering new corridors along with diversified basket of new products from traditional location and products and identify those new products and new locations. Current main basket of ready-made garments can be added by adding hides converting them into shoes and other leather products allowing branded companies in the special economic zones established by the government and private sector economic zones. Traditional export products need be upgraded to meet the demand of foreign countries. Bangladesh embassies, External Resources Division of Ministry of Finance should be assigned with export target on quarterly and annual targets of exports in the foreign destinations. 

Augmenting migrant remittances: With draw current restrictions on buying foreign bond by the Bangladeshi migrants allowing them to invest in the foreign currency bond at a lower interest rate. Engaging Mobile Financial Services (MFS) operators in foreign destinations is considered as remittance corridors given the faster, reliable and less expensive compared to Banking channel. Involving all the Bangladesh Embassies by setting monthly/ quarterly/ and annual targets of remittances with monitoring mechanism. Effective measures required to build up a strong foreign currency reserve position. These measures include curbing the hundi and hawala payment system, cross boarder black marketing inward and outward transactions, illicit transfer of foreign exchange from the country, illegal foreign employees working in different sector of the Bangladesh economy, stringent regulatory enforcement towards the stock market scammers turning into foreign currency scammer dealers. Digitizing financial transactions, revenue collection, introducing central bank digital currency, and gradually moving towards a cashless society in Bangladesh.    

Reducing current size of informal economy: The current size of informal economy to be formalized by taking appropriate action by curbing the sources of black money creation, digitalization revenue collection, increasing tax/GDP ratio by creating cashless society and introduction of central bank digital currency. Reducing fiscal deficit through substantial reform of NBR. Improving governance of banking sector through formation of banking commission. Execute the stock exchange demutualization effectively.       

Ensuring strict compliance to Anti Money Laundering activities: (a) Over invoicing of imports; (b) under invoicing of exports; (c) putting stringent and restrictive on money changer companies; (d) illicit cross boarder trading textile and jeweler and similar products to Bangladesh; (e) unearthing black money; (f) black money created from tax avoidance can be helpful to increase internal resources strength of Bangladesh.

Conducting continuous research on the currency crises by making diagnostic study over the issue as regular process following an accepted methodology by selecting the various economic factors, to assess the signals, early warning parameters, to make prediction on the currency crises under different options. Continuous monitoring on the movement and changes on different factors over time need be analyzed and share with policy makers for decision considering economic, social and political aspects. Prepare a short, medium, and long-term action plans for the benefit to the country.  Finally, the Prime Ministers’ office should open a special cell equipped by professionals to follow up all the economic matters suggested here to report and review the ongoing practices and report to the concerned authority for necessary actions to address the current and evolving situation.   

Action plans

Establishing discipline in currency management: In the absence managing uniform system of managing exchange rate there exists many rates. The Central Bank maintains official exchange rate the State-Owned Banks follows the rate in case of government transactions in case exhausting the quota they buy from other banks at higher different rates. The private banks also follow similar practices as State Owned but buys at different rates in case of diminished quota of foreign exchange. 

There are approximately 750 money changers (250 are said to be authorized and 500 are unauthorized) who applies different rates obviously higher than central bank and commercial bank’s rates. In the 61 banks in their foreign exchange branches would be 1200 branches (10% of total branches), if each foreign exchange branch overage has 5 brokers, then 6000 brokers are active in the market dealing in different rates most of them are unauthorized foreign currency dealers who buy and sale foreign exchange different rates higher than the banks apply. One can conclude that there exists multiple exchange rate in Bangladesh market where the scope of currency manipulation is high. Critics note  that most of the illegal brokerage houses are either owned by managers of the branches or directors PLCs, Share Brokerage Houses, and private limited companies; Banks, NBFIs, Insurance Company directors officially or unofficially (benami) taking advantage of weakness of regulatory institutions working in the corporate gatekeeping job. There should be expert committee with specific terms of reference to reform the conflicting issues to be resolved. 

Boosting exports:  Current export from Bangladesh need to boost up by discovering new corridors along with diversified basket of new products from traditional location and products and identify those new products and new locations. Current main basket of ready-made garments can be added by adding hides converting them into shoes and other leather products allowing branded companies in the special economic zones established by the government and private sector economic zones. Traditional export products need be upgraded to meet the demand of foreign countries. Bangladesh embassies, External Resources Division of Ministry of Finance should be assigned with export target on quarterly and annual targets of exports in the foreign destinations. 

Augmenting migrant remittances: With draw current restrictions on buying foreign bond by the Bangladeshi migrants allowing them to invest in the foreign currency bond at a lower interest rate. Engaging Mobile Financial Services (MFS) operators in foreign destinations is considered as remittance corridors given the faster, reliable and less expensive compared to Banking channel. Involving all the Bangladesh Embassies by setting monthly/ quarterly/ and annual targets of remittances with monitoring mechanism. Effective measures required to build up a strong foreign currency reserve position. These measures include curbing the hundi and hawala payment system, cross boarder black marketing inward and outward transactions, illicit transfer of foreign exchange from the country, illegal foreign employees working in different sector of the Bangladesh economy, stringent regulatory enforcement towards the stock market scammers turning into foreign currency scammer dealers. Digitizing financial transactions, revenue collection, introducing central bank digital currency, and gradually moving towards a cashless society in Bangladesh.    

Reducing current size of informal economy: The current size of informal economy to be formalized by taking appropriate action by curbing the sources of black money creation, digitalization revenue collection, increasing tax/GDP ratio by creating cashless society and introduction of central bank digital currency. Reducing fiscal deficit through substantial reform of NBR. Improving governance of banking sector through formation of banking commission. Execute the stock exchange demutualization effectively.       

Ensuring strict compliance to Anti Money Laundering activities: (a) Over invoicing of imports; (b) under invoicing of exports; (c) putting stringent and restrictive on money changer companies; (d) illicit cross boarder trading textile and jeweler and similar products to Bangladesh; (e) unearthing black money; (f) black money created from tax avoidance can be helpful to increase internal resources strength of Bangladesh.

Conducting continuous research on the currency crises by making diagnostic study over the issue as regular process following an accepted methodology by selecting the various economic factors, to assess the signals, early warning parameters, to make prediction on the currency crises under different options. Continuous monitoring on the movement and changes on different factors over time need be analyzed and share with policy makers for decision considering economic, social and political aspects. Prepare a short, medium, and long-term action plans for the benefit to the country.  Finally, the Prime Ministers’ office should open a special cell equipped by professionals to follow up all the economic matters suggested here to report and review the ongoing practices and report to the concerned authority for necessary actions to address the current and evolving situation.   

Action plans

Establishing discipline in currency management: In the absence managing uniform system of managing exchange rate there exists many rates. The Central Bank maintains official exchange rate the State-Owned Banks follows the rate in case of government transactions in case exhausting the quota they buy from other banks at higher different rates. The private banks also follow similar practices as State Owned but buys at different rates in case of diminished quota of foreign exchange. 

There are approximately 750 money changers (250 are said to be authorized and 500 are unauthorized) who applies different rates obviously higher than central bank and commercial bank’s rates. In the 61 banks in their foreign exchange branches would be 1200 branches (10% of total branches), if each foreign exchange branch overage has 5 brokers, then 6000 brokers are active in the market dealing in different rates most of them are unauthorized foreign currency dealers who buy and sale foreign exchange different rates higher than the banks apply. one can conclude that there exists multiple exchange rate in Bangladesh market where the scope of currency manipulation is high. Critics note  that most of the illegal brokerage houses are either owned by managers of the branches or directors PLCs, Share Brokerage Houses, and private limited companies; Banks, NBFIs, Insurance Company directors officially or unofficially (benami) taking advantage of weakness of regulatory institutions working in the corporate gatekeeping job. There should be expert committee with specific terms of reference to reform the conflicting issues to be resolved. 

Boosting exports:  Current export from Bangladesh need to boost up by discovering new corridors along with diversified basket of new products from traditional location and products and identify those new products and new locations. Current main basket of ready-made garments can be added by adding hides converting them into shoes and other leather products allowing branded companies in the special economic zones established by the government and private sector economic zones. Traditional export products need be upgraded to meet the demand of foreign countries. Bangladesh embassies, External Resources Division of Ministry of Finance should be assigned with export target on quarterly and annual targets of exports in the foreign destinations. 

Augmenting migrant remittances: Withdraw current restrictions on buying foreign bond by the Bangladeshi migrants allowing them to invest in the foreign currency bond at a lower interest rate. Engaging Mobile Financial Services (MFS) operators in foreign destinations is considered as remittance corridors given the faster, reliable and less expensive compared to Banking channel. Involving all the Bangladesh Embassies by setting monthly/ quarterly/ and annual targets of remittances with monitoring mechanism. Current External Resources Division need to work with Foreign Ministry in this regard meaning redefining the traditional role of these ministries to enhance migrant remittance in a safe-secured, faster and cheaper costs. 

Effective measures required to build up a strong foreign currency reserve position: These measures include curbing the hundi and hawala payment system, cross boarder black marketing inward and outward transactions, illicit transfer of foreign exchange from the country, illegal foreign employees working in different sector of the Bangladesh economy, stringent regulatory enforcement towards the stock market scammers turning into foreign currency scammer dealers. Digitizing financial transactions, revenue collection, introducing central bank digital currency, and gradually moving towards a cashless society in Bangladesh. 

Reducing current size of informal economy: The current size of informal economy to be formalized by taking appropriate action by curbing the sources of black money creation, digitalization revenue collection, increasing tax/GDP ratio by creating cashless society and introduction of central bank digital currency. Reducing fiscal deficit through substantial reform of NBR. Improving governance of banking sector through formation of banking commission. Execute the stock exchange demutualization effectively. Ensuring strict compliance to Anti Money Laundering activities: (a) Over invoicing of imports; (b) under invoicing of exports; (c) putting stringent and restrictive on money changer companies; (d) illicit cross boarder trading textile and jeweler and similar products to Bangladesh; (e) unearthing black money; (f) black money created from tax avoidance can be helpful to increase internal resources strength of Bangladesh. Conducting continuous research on the currency crises by making diagnostic study: Over the issue as regular process following an accepted methodology by selecting the various economic factors, to assess the signals, early warning parameters, to make prediction on the currency crises under different options. Continuous monitoring on the movement and changes on different factors over time need be analyzed and share with policy makers for decision considering economic, social and political aspects. Prepare a short, medium, and long-term action plans for the benefit to the country.   Finally, Honorable Prime Ministers’ office should open a special cell equipped by professionals to follow up all the economic matters suggested here to report and review the ongoing practices and report to the concerned authority for necessary actions to address the current and evolving situation.   

Jamaluddin Ahmed FCA PhD is the Chairman of Emerging Credit Rating Limited and Tier 1 Solutions Limited, ex-President of ICAB, ex-member of the Board of Directors of Bangladesh Bank, ex-Chairman of Janata Bank Limited, and ex-General Secretary of Bangladesh Economic Association. Email: jamal@emergingrating.com