The gross foreign exchange reserve in Bangladesh, according to International Monetary Fund guidelines, dropped further to $21.45 billion on September 20 from $23.18 billion on September 5.
The reserve depleted as a payment of $1.31 billion was made to the Asian Clearing Union for July and August earlier this month
Apart from the payment obligations to ACU, the ongoing sales of foreign currency contributed to the reduction in the country’s foreign exchange reserve.
However, according to the conventional valuation by the Bangladesh Bank, the foreign exchange reserve was at $27.33 billion on September 20.
The Asian Clearing Union is a payment settlement forum whereby the participants settle payments for intra-regional transactions through the participating central banks on a net multilateral basis.
The decline in reserves continued due mainly to a significant dollar shortage on the market, which has compelled the central bank to conduct dollar sales to banks from its reserve.
The depletion is causing concerns for both the government and the central bank due to potential fallout.
The Bangladesh Bank follows IMF’s BPM6 for calculating gross and net international reserves.
Over the past 26 months, the central bank sold approximately $23 billion from its reserve. This included $2 billion allocated to banks in July and August of the current financial year 2023-24, $13.5 billion in FY23 and $7.62 billion in FY22.
The dominance of the informal ‘hundi’ market, where unofficial currency trading occurs, also played a role in exacerbating the crisis.
On the open market in the capital Dhaka, the dollar is selling for Tk 117-118 each. A large deviation between formal and informal rates can divert remittance inflow from the official to the hundi channel, leading to potential under-invoicing of imports or informal capital outflows.
The ongoing dollar crisis has substantially affected banks’ capacity to settle import payments and open letters of credit, posing challenges for businesses.
The government and the central bank have recently taken various measures to restrict imports amid the dollar crisis, which consequently has lowered the trade deficit in the country.
In FY23, the country’s import payments fell by 15.76 percent to $69.49 billion, down from $75.4 billion in the corresponding period of the previous year.