Government Influence on Exchange Rate in Bangladesh: Problems and

Deficiencies of Managed Floating Regime

Noshin Tasneem (B1304005)Tania Islam (B1304051)

Tazkeer Azeez Chaudhuri (B1304061)Salsabil Rahman (B1304115)

Hossain Mohammed Omar Khayum(B1304055)

The exchange rate expresses the national currency's quotation in respect to foreign ones

tremendous attention from policy makers after Bangladesh has taken on the floating exchange rate

The changing of exchange rate brought many arguments

Bangladesh Bank intervenes to control exchange rate

Introduction

qualitative one with descriptive analysis

secondary sources

Characterize the exchange rate policies Evaluate the appropriateness of such policies Show what the problems are within

Suggest probable way out

Problem Statement

Methodology

Benefits

Objectives

adjustable pegged system

Exchange Rate History

1876 1944 1971

Gold Standard

Bretton Woods Agreement and Adjustable Peg System

The Smithsonian Agreement and Fixed and Floating Exchange Rate

the exchange rate system was dependent on the respective currency’s comparative convertibility to an ounce of gold

Gold Standard Inflation low

Long Term Planning

unstable liquidity position

can lead to imbalances contract the money

supply

Bretton Woods Agreement and Peg SystemBretton Woods Agreement and Peg System

Bretton Woods Agreement and Peg System

International Monetary fund

World Bank Group

country’s export and import

raises standard of living

overvaluation of the currency

Large amount of reserve has to be maintained

Pros And ConsThe Smithsonian Agreement

market forces of supply and demand began to determine the exchange rateallowed greater liquidity and central bank control

that it can be subject to attacks by speculators or sudden panic-driven moves

adjustable pegged system

Bangladesh Exchange Rate History

1972 1980 1983 2000 2003 2009

pegged to the British pound sterling

pegged to a basket of major trading partners' currencies with pound sterling as the

intervening currency

pegged to a basket of major trading partners'

currencies with US dollar as the intervening

currency

adjustable pegged system

floating exchange rate

Govt. active intervention

Avoid Inflation

Interest rate

stable wages and prices

economic growth in the long run

These are the reasons why Bangladesh has kept fixed exchange rate for a long time

Fixed Exchange Rate Bangladesh

Hurting Exports

Greater Earning Avoided

Requires Adjustments

Fixed Exchange Rate Bangladesh

Bangladesh needs to be a very strong economy for overcoming these obstacles

Pros And ConsFloating Exchange Rate

increase exportseconomic growth in the short runWeak currency can lead to higher earnings from exports

Inflationexcess volatility in the

exchange marketinternational reserves

Thinking The Other Way Round

economic benefits of an undervalued currency

achieve a higher export-led growth rate

more jobs for Bangladeshi workers

support Bangladesh’s market oriented development strategy

Managed Peg Regime

Reasons to Move Towards Managed Peg System

To increase flexibility

To trade with different currency easily

cheaper import cost or higher export growth

rapid economic growth

Probable Shortcomings

The valuation of the multiple currencies, continuous

monitoring, etc. will require

extra budget, effort

The measurements

are very sensitive,

weightage of the currencies is to be measured very carefully.

currency manipulation

will raise international controversy affecting the international

trade

The lag time of the adjustments

and policy implementation

will become risky for the

economy

RECOMMENDATIONS

Crisis management

Accumulation of Reserves

Proper Security of the Reserves

Institutional Development