Logic behind BB's dollar purchase

The ongoing move by the Bangladesh Bank to purchase US dollars from commercial banks at higher exchange rates has sparked considerable debate. To many observers, paying more than necessary for foreign currency appears counterintuitive. Yet this policy is not a flaw; rather, it is a calculated intervention designed to protect Bangladesh's economic stability.
In recent months, the Bangladeshi Taka has shown signs of appreciation against the US dollar. While a stronger currency may seem advantageous, it actually raises the cost of Bangladeshi exports for international buyers. For an economy where over 80 per cent of export earnings come from the ready-made garment sector, even a slight rise in currency value can make Bangladeshi products less competitive compared to rivals like Vietnam or Cambodia. By buying dollars at a higher rate, the Bangladesh Bank is deliberately slowing down the pace of Taka appreciation, ensuring that exports remain affordable and global buyers continue to prefer Bangladesh over its competitors.
Besides, remittances, which contribute more than US$20 billion annually to the economy, also depend heavily on exchange rate stability. If the Taka strengthens excessively, expatriate workers receive fewer local currencies per dollar, which reduces their incentive to send money through official banking channels. This creates the risk of driving more transactions into informal systems such as hundi. Maintaining a favourable exchange rate not only sustains remittance inflows but also strengthens the formal financial system.
Beyond exports and remittances, a stable exchange rate plays a crucial role in boosting foreign exchange reserves, offering predictability to importers, and signalling confidence to foreign investors. Rather than waiting for a crisis, the Bangladesh Bank is acting preemptively to avoid destabilizing currency volatility.
The central bank's decision to buy dollars at higher rates is not about incurring immediate losses; it is about securing long-term protection for the economy. By managing the exchange rate strategically, the Bangladesh Bank is shielding exporters, encouraging remittance flows, and safeguarding overall economic resilience. In today's globalized environment, exchange rate management is not merely a financial policy but a matter of national strategy.

Tahmid Hasnine Tashfin
Department of Accounting & Finance
North South University
tahmid.tashfin@northsouth.edu