Exchange rate should be left to the market
If you decide to allow subsidy only to the garment sector, then what will happen to the other industries?
![Exchange rate should be left to the market](https://www.tbsnews.net/sites/default/files/styles/big_2/public/images/2019/08/28/zahid-hussain-tbs.jpg)
To keep the exchange rate stable, Bangladesh Bank follows two approaches. They call the banks to impose a fixed taka-dollar rate. Secondly, they buy or sell dollars.
This year Bangladesh Bank has already sold 170 million US dollars and last year the amount was over 2.3 billion US dollars. If central bank stops selling dollars and allows the banks to sell it based on the demand-supply balance, the rate will adjust in line with the fundamentals. According to the Bangladesh Bank's own calculation, the rate is about Tk 92-4 per dollar if based on the Real Effective Exchange Rate.
Now, if BB stops giving direction and selling the dollars, it will have two benefits.
Firstly, there will be a better alignment of the exchange rate and it will benefit all the local businessmen who are competing on the export market. The government then will not have to continue the cash subsidy.
Secondly, the dollars BB is selling leads to corresponding taka deduction from the bankers' account that they have in Bangladesh Bank. As a result, their taka liquidity gets reduced, inhibiting their ability to provide loans. But if Bangladesh Bank stops selling dollars, this liquidity drainage will stop.
BGMEA is not seeking exchange rate flexibility. It is seeking a cash subsidy disguised under exchange rate adjustment applicable only to the value addition part of their exports. They do not want the market rate to depreciate because it will have an impact on their import costs. This is equivalent to having a multiple exchange rate, a practiced long abandoned because of its messiness and abuse.
A market adjustment of the exchange rate will help all exporters, protect domestic import substitutes and strengthen incentives for remittances. Also, if we think that we are lagging behind only because of the exchange rate, then it is not the true picture. There are other reasons.. This is apparent from the fact that our close competitors, such as Vietnam, are well ahead of us on export growth so far this year.
Our 'lead time' is higher than in most other countries and we are almost at the end of the list when it comes to our ranking on trading across borders. We take inordinately long time in the import and export process. If you cannot deliver in time, you have to give big discounts to bear the loss.
This is also affecting our businesses. Though we have the production capacity , we are lagging in deliver.
Let me conclude with one example. We now have a four-lane highway from Dhaka to Chattogram. But, trucks have to wait a long time to get to the port through the city because the narrow roads connecting the port with the highway is congested all the time. No matter how fast you reach Chattogram, it won't count unless you are able to reach the port as fast.
We end up losing valuable time waiting in queues to upload our products into the ships. If we can make this process faster, that might be a solution. As they say, "all is well that ends well." The journey to the Chattogram port does not, the closer we get to the port!