Crawling Peg from March aims tackle dollar crisis

The much awaited ‘crawling peg’ is going to be initiated from March to address the dollar crisis that has long plagued the nation.

The crisis started escalating since the beginning of the Russia-Ukraine conflict. Bangladesh's reserves are dwindling rapidly due to the US currency crisis, and efforts to stabilise the situation have proven ineffective.

Meanwhile, the central bank has been consistently selling dollars from its foreign currency reserves in an attempt to restore market stability, yet the crisis persists.

Conversely, reserves have halved over the past two-and-a-half years, dropping from $48 billion to $24 billion. In response, a swift implementation of a crawling peg system is being devised to introduce a more market-driven and controlled dollar exchange rate.

Multiple sources within Bangladesh Bank have indicated that starting from the first week of March, the dollar exchange rate will be determined using this crawling peg system.

An official from the relevant department of the central bank has stated that various initiatives undertaken to address the dollar crisis have proven futile, with reserves continuing to decline.

Consequently, to alleviate the dollar crisis, the crawling peg method may be employed to regulate and market-base the dollar exchange rate from the first week of March onwards. This approach has been successful in numerous countries worldwide.

The method will consider both the real effective exchange rate (REER) and the nominal effective exchange rate (NEER), maintaining a corridor of 50 paisa to 100 paisa with the 'crawling peg' rates in line with global standards. The Bangladesh Foreign Exchange Dealers Association (BAFEDA) will determine the dollar rate based on smart interest rates. An official at Bangladesh Bank said that the dollar crisis persists, exacerbated by manipulation between banks and exchange houses. Additionally, reserves are at a critical low, making it unsuitable to leave the dollar price to the market.