Bangladesh Bank's move to reduce its foreign currency spending has resulted in a measure of stability returning to the market, following a period of freefall in taka's exchange rate over the last four months.

The central bank recently introduced a series of regulatory measures to rein in the indiscipline taking hold in the currency market, that long operated as a sort of 'Wild Wild West' in the state's regulatory apparatus - largely unbound.

The volatile forex market has regained a sense of stability following implementation of the measures, that were both punitive and policy-based in nature.

The value of the US dollar, against which taka is pegged, stood at Tk 95 (the interbank rate) and between Tk 98-100 in the kerb market, where at one point it had reached a dizzying Tk 120 per US dollar over the summer.

The new regulatory measures have mostly been implemented under Governor Abdur Rouf Talukder, who only took over after joining as Bangladesh Bank Governor on July 12, 2022, has taken measures to bring the activities of banks and non-bank financial institutions (NBFIs) under strict monitoring.

He formed several teams led by deputy governors for inspection and monitoring of banks and NBFI activities.

Despite the central bank guidelines and instructions, several banks have been defying the rules of foreign trade, be it during LC opening, dollar trading, and even spending of forex through credit cards.

Against this backdrop, Bangladesh Bank asked 27 banks to explain unusual instances of forex spending.

The central bank found such excessive spending under 71 credit cards issued by the banks. The size of the transactions each range from USD $12,500 to $20,000.

Bangladesh Bank spokesperson and Executive Director Sirajul Islam told UNB that the banks have been asked to explain the irregularities.

He said that there is a $12,500 spending limit on each card. But a review by Bangladesh Bank revealed that many banks have allowed far greater sums to be transacted above this limit.

According to the Foreign Exchange Control Act, a person can spend a maximum of $12,000 worth of foreign exchange per year. If anyone wants to spend more, in sectors including medical treatment and education, he/she must secure the central bank's approval in advance.

Earlier, credit facility for the import of some products was taken away, the margin rate has been increased.

In one of the most talked-about moves that caused quite a stir in the country's financial sector, the Treasury chiefs of six private sector banks - 5 domestic, and the multinational Standard Chartered Bank - have been removed from duties for making unusual profits from selling dollars. Show-cause notices were served to the managing directors of these banks.

Later, Bangladesh Bank fixed a ceiling of Taka 1 profit per dollar to bring stability in the foreign currency market.

In further such measures, on August 31, the central bank issued a notification that individuals cannot hold on to $10,000 for more than a month. Whoever happens to be in possession now of an amount exceeding the limit has been asked to sell the balance by September 30 - otherwise, they risk facing legal action.

Professor Mustafizur Rahman, distinguished fellow at the private think tank CPD, told UNB that the central bank has taken the right measures by curbing dollar spending.

He said that it is possible to save around one-third of forex reserves by tightening unusual spending on imports and other sectors.

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