Bangladesh Development Update
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- The rapid increase in reserves in recent months raises the question of whether this accumulation has been excessive.
- The nominal exchange rate has been stable, but the premium on the curb market rate has increased.
 The rapid increase in reserves in recent months raises the question of whether this accumulation has been excessive. The significant costs attached to reserve holdings make it important to understand what constitutes an adequate level of coverage. Ideally, decisions on reserves should be governed by an analysis weighing the benefits of reserves against their cost. But in practice there is huge uncertainty about both the utility and cost functions that would inform such an analysis (see Box 1 for further discussions on the adequacy of reserves). The composition of reserves is important as well. About 70 percent of Bangladesh’s foreign exchange reserves are held in US dollars and about 20 percent in euros. Gold accounts for about 6 percent. In FY13, the Bangladesh Bank reportedly incurred large losses with significant appreciation of the taka against the dollar and decreases in the prices of gold and silver.
The nominal exchange rate has been stable, but the premium on the curb market rate has increased. After depreciating against all major currencies, the exchange rate entered a phase of creeping appreciation from November, 2012. By end-August 2013 the taka had appreciated nearly 5 percent (Figure 9), despite the Bangladesh Bank’s intervention.15 However, the average curb market rate moved counter to the average interbank exchange rate, depreciating by about 1.6 percent since February 2013. As a result, the curb market premium has more than trebled, to 4.2 percent by end-August from 1.2 percent in February. This apparent divergence in the behavior of the formal and informal market exchange rates has been generally attributed to capital flight. Media reports provide anecdotal evidence that an increasing number of Bangladeshi businessmen and professionals are investing in real estate in Kuala Lumpur, Toronto, Bangkok, London, and Singapore, possibly prompted by political uncertainties. The situation appeared to have been serious enough to compel the Bangladesh Bank to issue a circular on August 22, reminding investors that moving funds out of the country to invest in real estate abroad is illegal and a punishable offense under the Foreign Exchange Regulation Act 1947.16 Directory: curated curated -> Concept stage curated -> Concept stage curated -> Republic of Côte d'Ivoire Urbanization Review curated -> Report No: aus11011 Central America curated -> Report No. 94474-pk fiscal Disaster Risk Assessment Options for Consideration curated -> Environmental and Social Management Framework for the Costa Rica Telecommunications Sector Modernization Project curated -> Environment Impact Assessment For Jiangxi Shangrao Sanqingshan Airport Beijing Guohuantiandi Environmental Technology Development Center. Ltd. Oct. 2012 Content curated -> Growth through Innovation An Industrial Strategy for Shanghai By Shahid Yusuf Kaoru Nabeshima April 22nd, 2009 curated -> Report No: 70178. People's Republic of China Download 0.87 Mb. Share with your friends:
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