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Bangladesh is a very small player on the international market when it comes to internationaltrade. Its trade volumes are minuscule compared to global players. So concentrating mucheffort on managing its foreign reserves may seem quite irrelevant as it matters little on aglobal scale. However, as people of Bangladesh it means the exact opposite for us. This isbecause unlike the United States or the Eurozone, a large number of giant economies wouldnot place their significant weight behind propping it up. We as a country must see that our reserve levels are maintained so that we can display a clean bill of health to the globaleconomy and grow at a sustainable rate by tapping into the global market.In this paper, we will look at who controls the foreign exchange policy, the foreign exchangereserves, how it is managed, what the optimal level of reserves ought to be and steps to beimplemented in enabling sustainable growth in the economy through foreign exchangereserve maintenance.
The Policy Maker and Implementer
In Bangladesh, the Bangladesh Bank is in charge of formulating and implementingexchange rate policies and the official foreign exchange reserve holder. Towardsliberalization of foreign exchange transactions, a number of measures were adopted since1990s. Bangladeshi currency, the Taka, was declared convertible on current accounttransactions (as on 24 March 1994), in terms of Article VIII of IMF Article of Agreement(1994). As Taka is not convertible in capital account, resident owned capital is not freelytransferable abroad. Bangladesh adopted Floating Exchange Rate regime since 31 May2003. Under the regime, BB does not interfere in the determination of exchange rate, butoperates the monetary policy prudently for minimizing extreme swings in exchange rate toavoid adverse repercussion on the domestic economy. In the forex market banks are free tobuy and sale foreign currency in the spot and also in the forward markets. Bangladesh Bank