Asian University Of Bangladesh

BBA 4162: International Business

Research Title: Why All Currency Losing Value Against US Dollar?

Section: A
Group: 04
Semester: Spring 2023

Student Name Student ID

Siam Ahmed 201820316
Oishi Akter 202065299
Sharon Islam Rifat 201945688
Lisan Ahmed Nime 201820436

Abstract
At present, according to the exchange rate of the Bangladesh Bank, every
dollar is being exchanged at 92.80 takas. On the other hand, in the open
market or kerb market, every dollar is being exchanged at 94 to 97 BDT.
Even in the 3rd week of May, the kerb market was trading at 101-102 BDT
per dollar. In the last one year. The taka fell by 4.7% against the USD.
However, in the nine years from May 1012 to May 2021, the value of the
taka has decreased by 3.37% against the USD. Not only the Bangladeshi
Taka but also the currencies of the world’s top economies like the UK &
Germany, including the neighboring countries like India, Pakistan, Sri Lanka
and Afghanistan, have also lost value against the US dollar. For example,
within the last one year, The GBP in the UK and The EUR from various
Bangladeshi Taka, losing their value against the dollar?

Overview
Due to the pandemic effect which began in 2020, the import and export-
oriented activities all around the world have severely hampered production.
And because of that, global inflation was also increasing. Inflation refers to
the loss of purchasing power over time. Due to the pandemic, every
economy in the world increased the money supply in their economy
through stimulus packages or financial assistance to keep the economy
moving. As a result, the purchasing power of the people has also
increased. But the global supply chain was disrupted by pandemics, and
inflation continued to rise due to insufficient supply. Although the world’s
economies began to return to normal by the end of 2021 and in March of
2022, Russia invaded Ukraine. As a result, the global supply chain has been
messed up once again. As an effect of this war, the supply chains of the
fuel sectors, such as oil and gas, are impeded. Various precious metals and
minerals; wheat, corn, barley, sunflower seeds, nitrogen, potassium, and
phosphorus fertilizers are also on the same track. However, the price of oil
and gas continues to rise due to this disruption. In addition, supply chain
issues in agricultural products and fertilizers are also creating suspicions
about global food safety. This is causing a hike in the living expenses in all
countries across the world. The inflation rate in the USA reached 8.5% in
March 2022, the highest in the country’s history since 1981. The country’s
latest Consumer Price Index (CPI), which basically indicates the prices of
various goods and services, rose to 7.9% in February, the highest annual
inflation rate in the country’s 40-year history. Inflation in the country’s
gasoline index rose to 18.3% in March. On the other hand, the index shows
that the inflation rate in the food index in March has increased by 8.8%
compared to the last 12 months. As a result, the country’s Federal Reserve
system, or central monetary policymakers, decided to raise interest rates.
Since then, the currencies of other countries worldwide have been losing
value against the US currency.

The exchange rate of the Sri Lankan rupee was 199.5 against the dollar in
May 2021 (31/05/21), which lost 44.5% of its value and is now at 360.99 Sri
Lankan Rupees as of the exchange rate of 15 June 2022. However, Sri
Lanka is going through one of the biggest financial crises in the country’s
history due to several government policies, including declining tourism
revenue due to terrorist attacks, the Corona epidemic, and the global supply
chain issue caused by the Russia-Ukraine conflict. In the last ten years,
from May 2012 to May 2022, the country’s currency lost more than 63% of
its value (63.29) against the dollar. The Pakistani rupee, on the other hand,
lost 39.21% in the period from 2012 to May 2021 but lost more than 23%
(23.1%) only in the last year. The country’s currency is in crisis as the
country’s reserves have been reduced due to the long-running balance of
payments crisis. In this context, many economists are worried that
Pakistan’s situation will be similar to that of Sri Lanka.
Even in India, the largest economy in South Asia, the Indian rupee is
depreciating against the dollar. While the Indian rupee has lost 22.20% of
its value against the dollar in the nine years from May 2012 to May 2021, it
has lost another 7% (6.5%) within the span of one year, according to the
reports of 2022. On the other hand, Vietnam, commonly known as the
“future Asian tiger,” has seen an appreciation in its currency. Although their
economy is somewhat comparable to Bangladesh’s, the Vietnamese
currency has strengthened against the US dollar over the past year.
However, in the nine years from May 2012 to May 2021, the country’s
currency also lost more than 11% (11.54%) of value against the US dollar.
On the whole, the country’s currency has risen over the last one year, losing
more than 9.52% of its overall value between 2012 and 2022. The Maldives
is the only South Asian country that is a complete exception. Although the
country’s currency has lost 0.60% of its value against the dollar in the past
year, the Maldivian currency has strengthened against the dollar in the ten
years from 2012 to May 2022. Again, the two most powerful currencies in
the world, the GBP, or the pound, and the euro, have lost 12.5% and 13.7%,
respectively, in the last one year. Within the year, The Chinese currency, the
yuan, and, the Japanese currency, the yen have lost about 5% (4.8%) and
14.3%, respectively. But what exactly is the reason that currencies around
the world are losing their value against the dollar? Or is the US dollar
getting stronger against all currencies?
The Indian Rupee, , Chinese Renminbi, Japanese Yen, UK Pound, and European Euro all lost 6.5%,
5%,14%.12.5%, and 13.7% of their value versus the U.S. Dollar between May 2012 and May 2022.

Why Are Other Currencies Losing Value?

The US Federal Reserve System raised the short-term interest rate by 0.75% on
May 4, the highest increase in the country’s 20-year history. Basically, by
increasing interest, the country is trying to encourage people to save money and
discourage spending. In doing so, the country’s Federal Reserve has reduced the
dollar’s global circulation. In addition, the Biden administration is going to take
several more steps to reduce the cost of living by reducing oil, gas, and energy
bills. However, these efforts to control the inflation rate by reducing the US dollar
supply are affecting other economies around the world. As the import cost of
each country has increased due to inflation, the demand for dollars has risen too.
On the other hand, the dollar circulation is decreasing due to the policy of dollar
supply reduction. As a result, the dollar has strengthened against almost all
currencies in the world, and many countries, large and small, are losing value
against the dollar.
This decision by the US Federal Reserve has also had a major impact on the
stock prices of companies listed on US stock markets. Tech companies like
Apple, Microsoft, Google, Amazon, Tesla, and other companies like Disney,
Netflix, and Ford continue to lose stock prices. On 20th May, the Dow Jones
Industrial Average fell more than 15% from its Historical High of 36800 On
January 4, 2022. Similarly, the S&P 500 reached a historic high of 4698 points on
January 3 of this year, but by May 20, it had yielded about 19% (18.66%). Since
January, these indexes have been losing points but began to recover in late
March. But then, the US Federal Reserve began to rise again based on the news
of a rise in interest rates. At the same time, the share price of various companies
listed in the market also decreases. Although each index is currently recovering
slowly, no index has yet returned to its previous position.

Why is BDT Losing Value?

According to an article by a former governor of Bangladesh Bank published in
The Daily Star, Bangladesh currently has a trade deficit of 25 billion and a current
account deficit of 14 billion. In addition, remittances have declined by 18% this
fiscal year. As a result, the country’s foreign exchange market has come under
pressure. The central bank has released about 6 billion of its reserves to keep the
value of money high, and thus the foreign reserve has been reduced to about 42
billion. But economists say that while all economies, large and small, have
devalued the value of their currency against the dollar, increasing the supply of
dollars from foreign reserves and maintaining the value of artificial money could
have a negative effect on the economy in the future. On the other hand, the
central bank is also reducing the value of money against the dollar step by step
so that there is no adverse reaction in import-export trade. Taka has been devalued
against the dollar in seven steps this year.

Furthermore, the central bank, as well as the government, have taken a number of
measures to reduce the pressure on the foreign exchange market, and several
more are in the process of being implemented. The government has already
increased taxes on imports of 135 products to a maximum of 20%, up from zero
to 3%. The government has also issued restrictions on foreign travel to officials
of government, semi-government and autonomous organizations. On the other
hand, the Bangladesh Bank has also imposed restrictions on unnecessary foreign
travel of bank officials. However, bank officials will be able to travel at their own
expense to attend training and seminars. In addition, taxes on imports of luxury
goods, such as cars and electronic appliances, may increase. The National Board
of Revenue has also proposed to impose a 5% VAT on manufactured
smartphones and refrigerators in Bangladesh. In addition, to reduce the trade
gap, the government may take steps to increase the number of import-prohibited
products. The government is also considering canceling taxes on refined
soybean and palm oil and banning the export of rice bran oil to boost food safety.
There are also plans to import wheat from India through G-to-G management.
In addition, some more steps may be taken to increase the amount of dollars in
the country’s reserve bank. In this context, Mr. Atiur Rahman also gave some
suggestions, such as boosting the cash incentive amount by 0.5% to increase the
remittances in legal channels. To improve the flow of remittances, the obligation
of documents to send money to the country has already been removed for non-
resident Bangladeshis and migrant workers. As a result, they will no longer need
to submit any documents to send $5,000 or more.
Besides, like other central banks in the world, the Bangladesh Bank has also
increased its policy or interest rate. On January 5, 2012, the Bangladesh Bank
raised the policy rate by 0.50% and set it to 7.75%, which has been reduced
several times and was reported to be at 4.75% in July 2020. On May 29, 2022, the
Bangladesh Bank again raised the policy rate to 5%.
The Bangladesh Bank increased the policy rate by 0.50% to 7.75% in January 2012, although it has since
been cut many times, with reports of 4.75% in July 2020 and 5% in May 2022.

By raising the policy rate, the government can motivate people to save
money by reducing unnecessary expenditure and thus try to bring inflation
under control by managing the country’s overall money supply.