Saifur shies away from free float of taka
Against the proposition of free float of taka, speakers at a dialogue in the city yesterday favoured continuation of the existing exchange rate regime in view of lack of institutional capacity and other financial weaknesses.
They also said the present exchange rate policy (an adjustable basket pegged exchange rate) is serving the country quite well and that the economic and institutional prerequisites, especially to deal with the volatility once the exchange rate is floated, are not visible in the country.
"I do not have any rigid stand but the current exchange rate policy is serving us better at least for the time being," Finance and Planning Minister M Saifur Rahman who was the chief guest told the dialogue.
Referring to the weaknesses of the country's financial market, Saifur said, "The depth and strength of our money market do not suggest that we should opt for a policy which we cannot handle and would create problem for us."
The Centre for Policy Dialogue (CPD) organised the dialogue titled "Full Float of Taka: Is Bangladesh Ready for It?" at the CIRDAP auditorium. Chairman of the CPD Professor Rehman Sobhan chaired the session and Bangladesh Bank (BB) Governor Dr Fakhruddin Ahmed spoke as special guest. Economists, former BB governors, bankers and business people took part in the dialogue. CPD fellow and former bureaucrat Dr Mirza Azizul Islam presented the keynote paper titled "Exchange Rate Policy of Bangladesh Not Floating Does Not Mean Sinking".
The finance minister mentioned that the international agencies counselled Bangladesh to opt for free float of the exchange rate. But there are many factors that have to be looked at before opting for free exchange regime, he said.
Other than macro-stability and other economic factors, Saifur said, even the social considerations would have to be taken into account before the policy shift.
If the exchange rate soars after free float of the currency, investment would face a severe blow, he noted.
Mentioning that about US$ 200 million is traded in the inter-bank forex market, Dr Fakhruddin Ahmed said a sort of market mechanism is working under the present exchange rate regime.
Referring to the aftermath of free float of exchange rate in the neighbouring countries, the BB governor expressed his belief that even in a free market situation, the central bank has a role to play.
Former finance minister M Syeduzzaman said the country should prepare itself for free float of exchange rate, but it should not jump into it. The country now has to balance its budget, correct its market imperfections and wipe out weaknesses of the institutions.
He however said a sort of distortion in the country's exchange rate regime is one of the reasons for the huge trade imbalance with India.
Former BB governor Dr Farashuddin Ahmed said the volatility and risk associated with the full float of exchange rate may have a negative impact on the inward remittance. He also mentioned that the Sri Lankan currency witnessed around 35-40 per cent depreciation in a short period when it opted for market-based exchange rate.
He suggested some changes in the present exchange rate regime and inclusion of the currencies of trade competitors in the currency basket.
At present currencies of 15 major trade partners are in the basket, based on which the rate of taka is determined.
Former secretaries Dr Mashiur Rahman and Dr Toufique Elahi Chwiodhury and CPD Executive Director Dr Debapriya Bhattacharya, among others, spoke on the occasion.
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