Bangladesh Taka Case Study

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Register to read the introduction… Any rise in the prices of such inputs through devaluation, would raise industrial costs and reduce the intensity of capacity utilisation. Therefore, it should be avoided as a resort to deficit financing. Devaluation with its implications will cause a contraction in economic activity and consequently slide in income tax receipts will raise the burden of Bangladesh's foreign debt overnight. It cannot stop smuggling as long as black-market transactions in foreign exchange continue.

Devaluing Bangladesh Taka means devaluing the price of Bangladeshi labour and talent in the international market that send foreign exchange through home remittance. Devaluation will make Bangladesh lose heavily both as seller and as a buyer and will make no good substitute for remedial changes in economic policies and developmental
…show more content…
However, he told beyondbrics the “3 per cent devaluation was a token gesture” and he “would not rule out further downward moves in the future”.
Ajith Nivard Cabraal, governor of the central bank, confirmed the devaluation would go through on Tuesday – the central bank controls exchange rate movement within a trading band. The rupee is currently trading at Rs110.39 against the dollar.
The devaluation is sure to please the IMF, which in early September remarked that non-borrowed reserves – those not including IMF funds or foreign holdings of treasuries, for example:
[Have] steadily declined, reflecting foreign exchange sales by the Central Bank. This policy does not seem to be in line with the current fundamentals of the economy. In responding to market pressures, the Central Bank should henceforth limit its intervention and allow more exchange rate flexibility. Flexibility in the exchange rate, which has appreciated substantially in real terms over the past two years, is also an essential component in ensuring Sri Lanka’s export competitiveness.
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Source: Asian Development

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