The manner in which Bangladesh Bank raised the exchange rate of the dollar by Tk7 at once is not consistent with how the crawling peg system operates. In fact, the central bank is implementing a coercive policy under the guise of voluntariness," said Biru Paksha Paul, an economics professor at the State University of New York and former chief economist at Bangladesh Bank.
During an interview with Barta24.com Planning Editor Ashraful Islam, Biru Paksha Paul discussed various aspects of the current economy, including the central bank’s policy-level weaknesses, restrictions on journalists' access, and the clash between academics and bureaucrats.
The economist said the Bangladesh Bank had no choice but to increase the dollar rate as it failed to meet the reserve target set by the International Monetary Fund (IMF) as a condition for obtaining a $4.7 billion loan. To better explain the situation, the prominent economist resorted to a story: a man who rescued another person who fell off a ship was recognized with a medal, but it turned out that the person did not voluntarily jumped into the sea; rather, someone pushed him.
Biru Paksha argued that the system implemented by Bangladesh Bank is not a crawling peg but rather a "jumping peg." Regarding the potential impact of the sharp hike, Paul likened it to a student falling ill after cramming overnight following a year of neglecting studies.
He said the central bank would not need to increase the exchange rate at once if it listened to economists. Economists in the country have long advocated for introducing a market-based exchange rate, but Bangladesh Bank ignored their advice, prioritising the interests of certain groups over setting a knowledge-based policy.
The economist pointed out that the dollar rate had long been artificially devalued to favour certain importers, who prevented the central bank from allowing the exchange rate to be determined by the market. This issue was exposed during the Covid-19 pandemic.
He attributed the current economic crisis not to Covid-19 or the Russia-Ukraine war, but to the central bank's policy-making weaknesses.
He blamed the crisis on the Bangladesh Bank governor, stating that the bank invited economists to offer advice but did not accept any suggestions.
He also criticized the governor's introduction of the SMART system for determining lending rates, which was later revoked, as well as the forced merger of weak banks with stronger ones in the name of voluntariness, a move from which they also had to step back.
Regarding Bangladesh Bank's restriction on journalists' entry, Biru Paksha said the central bank's role as a major source of economic news and criticised attempts to conceal information.
He also opposed bureaucrats' entry into politics, citing former Bangladesh Bank Governor Forasuddin's opinion that retired bureaucrats should not join politics as it diminishes the quality of politics.
Biru Paksha Paul said the bureaucrats now think of how to join politics while still in the government service. He said loyalty is now considered as a qualification in the job recruitment process.
The financial disaster experienced in the last two and a half years was created by these loyalists. Covid-19 or the Russia-Ukraine war has nothing to do with this crisis, said Dr Biru Paksha Paul.
