How far a currency could go down?

Md Rezaul Karim By Md Rezaul Karim, 31st Dec 2011 | Follow this author | RSS Feed
Posted in Wikinut>Writing>Columns & Opinions

Currency could be devalued, could go down and rise up along with economic progress, but Taka is different from other currencies.

Value of Taka going down

Taka has been losing its value against all the foreign currencies available in Bangladesh. In the last one year alone Taka devalued 15.43%. This is a record declining in the history Taka. Even sometimes dollar is scarce at higher market price too! Importers have problems in paying dues to exporters due to the bank reserve shortages. The situation derives as foreign currency earning declined drastically. Due to supply shortages against demand the price of foreign currencies have been going up, Taka losing values. In Bangladesh as per official declaration per dollar one has to pay Taka 81+, in comparison with the last year’s Taka 69, meaning per dollar- Taka lost its value Tk.12 in one single year. Once there was time when Bangladesh Bank used to declare the devaluation of Taka against dollar, now it seems government lose its control over the economy, so everything happens like butter smooth. Is it because government doesn't want to show its face of economic growth and development that it has been drumming since coming to power! Even if we consider Euro, Yen or British Pound, once cannot compare Bangladeshi Taka – we're the champions!

Exporters are happy when Taka is devalued or gone to the drain, as their little earnings would mean huge Taka at home, which they spend lavishly, meaning in dollar term their cost of production declines, when the currency converted. In other words, employees and workers have been gradually getting lesser salary and remunerations from the exporting employers. Again, another reason for less foreign remittance income – exporters do not bring all their proceeds to Bangladesh due to many other understandable reasons!

Reverse is importers who buy products from foreign countries and higher dollar price means much Taka to spend, less goods are available with the same amount of Taka we spent yesterday. Fact is we are import dependent country- we import more than we export. Moreover, the prime export sector garments also import dependent, as we do not produce all the accessories and raw materials for the product. So, in macro economic management considerations, devaluation of Taka brings more negative impacts on the mass level, triggering inflation rate.

Due to current situation import costs increased by 8% on top of that we should not forget all the direct indirect taxes, levies, and VATs. Result is people cannot afford their living standard. Government has been borrowing too much from the banks, foreign donations and credits are dry, no foreign or local investments pouring in- unemployment increasing, affecting socio-economic conditions negatively.

Government is to stabilize the dollar –Taka exchange rate, and focus on investment, so that employment boost up and less borrowing from banks must be adhered to. In solving unemployment online earnings and facilitate financial tools to the public have been very essential at this point in time. This is strange to know that in Bangladesh you cannot have Pay pal, Liberty Reserve, Alert pay or any other Master card credit card from the local banks. Only very rich people who have millions of dollars income may apply for the Master Card only; that also available not to all the banks and it is not free to use everywhere and anywhere in the world. This is quite a hindrance for public to explore Internet earning options independently where millions of people have potentialities but government in lieu of opening the opportunities rather putting hindrances on private trying of sources of self-employments! It’s a pity for the people and shame for the economic ministry and Bangladesh Bank authority. Bangladesh is stepping forward or backward critics wonder! Still the communism theme and angels constitute the molecule of macro planners’ minds. Reason is the fear – fear of uncertainty and fearing of what would be outcome if you facilitate economic liberties to people. We need knowledgeable people to run the economy not just junkies!

Lets confine our discussion in the dollar-Taka exchange rates. In one week Taka devalued 3 Taka meaning in one week Taka lost 5.42% of its value against dollar, only the other global competitors are New Zealand and Australian dollars who also lost values @2.11% and 2.64% respectively in the same time. After independence 1971, 1British pound was sold @ Taka 18.9677, and dollar was sold @ 7.8763 Taka. Now the Pound 1= 127.4378 Taka, and 1$ = 81+ Taka! This indicates how efficiently Bangladesh has been ruled and managed by the economists. But when they talk – its big mouth, everything seems mouthful!

When things not happen in straight way, people try it another way-, which we lovingly call corruptions. Importers to make good their losses and keep their competitiveness in tact do have some kind of arrangements (popularly knows as under invoicing) by which they downplay the actual price and show it less valued in the Letter of Credit. By doing this importers can evade taxes, levies, and VATS (Of course, you can’t evade bribes! That’s mandatory no matter what!), so, in the end per unit costs can be controlled and profit could be made in buying! Of course, the balance amount is normally paid thru’ non-banking channels, known as ‘hundi’ by passing the banks. It’s a kind of informal private agencies who have offices in both the countries and pay with reasonable charges. These services are fast, reliable, economical, and confidential. This is unfair, unethical and simple financial misappropriation. Do Government planners and experts know this? Answer is yes. So, why not rather rectify the system, and make win-win policy. Don’t ask me- better ask God!

Who fix ups the currency exchange rate?
After liberation the government was the sole source of fixing up the currency rate. In 1994, March 24, Taka was declared as exchangeable. Since 2003 Taka was declared as floating money, and government stopped declaring the currency exchange rates. Yet it has not been completely free from the government interference and control, meaning it was never based on demand and supply or market. Rather at best it could be called ‘managed floating rate’ mechanism.
International Monetary Fund has been advising and emphasizing time and again to leave the currency exchange rate mechanism totally on the market and non-interference from the Government. Now, the government has been discussing with IMF in getting the extended loan facilities that is called ‘ESF’, for that IMF put its principal condition, as the exchange rate must be based on market demand and supply. If this were done, Taka would lose more of its value, Bangladesh Bank suspects and hence worried about it!
To conclude- if you consider a country – business center, people are its stakeholders- what the business corporates have done for us in this long forty years? But all of them have made their lucks at the cost of others who we all pity!

Tags

Bangladeshi Taka, Dollar, Economy, Monetary Policy, Pound Sterling

Meet the author

author avatar Md Rezaul Karim
I am a teacher engaged with the Southern University Bangladesh. I Like to use my spare time by writing and reading. I take it as a fun and source of inspiration in pursuing knowledge.

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Comments

author avatar Buzz
1st Jan 2012 (#)

I take my hat off to your brilliant analysis in all things business and economics, Md.

Interesting page.

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author avatar Md Rezaul Karim
2nd Jan 2012 (#)

Thank you Buzz.

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author avatar Ivyevelyn, R.S.A.
4th Jan 2012 (#)

Thanks, Md. As Buzz says, you cetainly are very knowledgeable about the different situations in Bangladesh.

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