The flip of forex trading
Sheikh Mohammad Danial |
May 28, 2022 1:20:24 p.m.
May 28, 2022 1:22:30 p.m.
A seesaw allows short-term perpetual motion of equal distribution of highs and lows for both ends. If we take a closer look at the influence of the taka rate on trading, the swing has been more in favor of currency (forex) buyers than its sellers lately.
Lately, it has become apparent that the swing of forex trading in Bangladesh has a more powerful third party, which dominates its magnitude and benefits.
In theory, the Bangladeshi taka or BDT is a floating currency. In reality, however, it is a managed float or indexed float scheme.
The real effective exchange rate (REER) is the weighted average of a country’s currency against an index or basket of other major currencies. The weights are determined by comparing the relative trade balance of a country’s currency to that of each country in the index.
The real effective exchange rate of the taka in 2021 averaged 110 BDT to 1.0 USD, while bank rates ranged between 84 and 86 BDT to 1.0 USD. This means that those who spent and bought USD enjoyed an advantage of 25-26 BDT per USD.
The flip side of this equation is that people earning a dollar in Bangladesh were stiffened by this very huge margin. The currency seesaw was tilted towards those who would spend and buy dollars versus those who would earn and sell forex.
The major spenders and buyers of the greenback are importers, which even include the government, as well as international medical and leisure tourists from Bangladesh. The main foreign currency earners in the country are exporters and shippers, which also include government departments such as peacekeeping forces.
Until 2021, it seemed like exporters and shippers were getting a rough deal as they received an exchange rate that indirectly taxed them BDT 25-26 per USD only to indirectly subsidize importers and global tourists from Bangladesh.
However, the system appears to have become unmanageable of late as banks overcharge importers to pay their import bills at a rate significantly higher than that set by the regulator, Bangladesh Bank, without having to pay a rate. higher to exporters and shippers.
If 2021 has seen the seesaw become skewed in favor of importers, the current 2022 has seen the forex seesaw dismantled and converted into what appears to be a shift towards banks and other financial institutions.
If our currency were truly floating, many believe it could trigger inflation that could be burdensome for the poorer segment of society, for whom the government can always directly subsidize. This would be more efficient than subsidizing all imports in full, because we need to subsidize food, transport, education and housing for the less advantaged instead of subsidizing cow’s milk, Mercedes SUVs and other imports luxury.
We must not be a nation that privileges the wealthy over hard-working shippers and exporters. If nothing else, we should build a fairer economic society where the forex seesaw can be a balanced balancer.