Sustained high demand for US dollars by commercial banks in Bangladesh is putting pressure on the currency, prompting some experts to suggest that the taka should be devalued.

Bankers however disagree, arguing that devaluation would make it harder for importers to settle letter of credit (L/C) obligations.

Trading trends

The main drivers of high demand for the US dollar include the raft of mega projects under development in Bangladesh, and an increase in imports of raw materials and other commodities.

But while imports have increased substantially, there has not been a corresponding rise in exports.

Counter arguments

"Since export earnings are not growing as compared to imports, the taka must be devalued against the US dollar," argues executive director of the Policy Research Institute of Bangladesh, Ahsan Mansur.

But managing director of Bank Asia, Arfan Ali, disagrees. He says that rising exchange rates would put pressure on inflation because prices of imported goods would increase.

"Devaluing the local currency puts pressure on the liquidity market as the settlement of L/Cs will require more money," he says.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.