Is Bangladesh’s Foreign Exchange Market Truly Free-Floating? The IMF Isn’t So Sure.
In a bold assertion that’s sure to spark debate, Bangladesh Bank Governor Ahsan H Mansur declared today (2 November) that the country’s foreign exchange market operates in a completely free-floating state—a claim that directly addresses concerns raised by a visiting International Monetary Fund (IMF) team. But here’s where it gets controversial: despite the governor’s insistence, the IMF delegation isn’t entirely convinced. And this is the part most people miss: the nuances of what it truly means for a market to be free-floating, especially in an economy heavily reliant on exports and remittances.
During a meeting held around 5pm, attended by several deputy governors and executive directors, the IMF team observed that Bangladesh’s foreign exchange market isn’t yet fully free-floating. In response, Governor Mansur firmly stated, “We are in a completely free-floating state. There is no intervention in the market.” Yet, when pressed on why the Bangladesh Bank continues to purchase dollars from the market—a move that could be seen as intervention—the governor explained that such actions are standard for countries dependent on exports and remittances. “Countries like Japan also buy dollars from the market,” he noted, framing these operations as routine rather than manipulative.
Here’s the twist: the governor added that banks currently hold ample dollar reserves, and import demand is relatively low, leading to an excess of dollars in the market. The central bank, he explained, is simply absorbing this surplus through its purchases. But does this absorption constitute intervention, or is it a necessary mechanism to stabilize the market? That’s the question at the heart of this debate.
Controversy Alert: While the governor’s explanation makes sense in theory, it raises a thought-provoking question: Can a market truly be free-floating if a central bank actively buys excess currency? Or is this a pragmatic approach to managing an export-driven economy? We’d love to hear your thoughts in the comments—do you agree with Governor Mansur’s stance, or does the IMF’s skepticism resonate with you? Let’s dive into this complex yet crucial discussion!
