Bangladesh鈥檚 currency, the taka, has finally moved close to its fair value against the US dollar, trading at a level that better reflects economic fundamentals after years of artificial overvaluation and damaging distortions.
A Bangladesh Bank special publication, Estimating Equilibrium Exchange Rates for Bangladesh, showed that the misalignment has narrowed sharply in 2025, with the exchange rate now almost in line with its equilibrium value following the shift to a fully market-based system.
For years, exchange rate management kept the taka stronger than it should have been.
At times, it was overvalued by 15 to 20 per cent, which distorted external balances, discouraged remittance inflows through formal channels, and eroded export competitiveness, according to the BB report.
The central bank was forced to sell dollars to defend the rate, draining reserves while import bills grew and exporters struggled to stay competitive, financial experts said.
Migrant workers also turned to hundi networks, finding little incentive to remit through banks.
Masrur Reaz, founder and chairman of Policy Exchange of Bangladesh, told 抖阴精品 that the taka is now slightly undervalued and facing appreciation pressure.
He explained that dollar supply has strengthened in recent months as remittance and export earnings rose while imports fell, reducing demand for the greenback.
鈥楾he current exchange rate is now much closer to its fair value,鈥� he said.
Reaz also noted that Bangladesh Bank has been buying dollars from the market to manage the rate through its intervention mechanism.
Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, said the market has stabilised, reflecting a justified price level.
鈥楾he decision to adopt a market-based exchange rate system was prudent, and it has helped bring stability to the market,鈥� he said.
The BB report traces how this gap developed.
In June 2021, the taka was 9 per cent overvalued against the real effective exchange rate (REER) and nearly 15 per cent above its equilibrium level.
By June 2022, the misalignment had widened to more than 20 per cent.
In June 2023, the official rate slipped to Tk 105.91 per dollar, narrowing the gap but still leaving an overvaluation of about 8 per cent.
By 2024, the rate reached Tk 117.97 per dollar, when the misalignment had shrunk to only half a per cent, though frequent administrative interventions kept the market unstable.
A major shift came in May 2025, when Bangladesh Bank introduced a fully market-based exchange rate system.
By June 2025, the market rate was Tk 122.85 per dollar, while the equilibrium value, estimated using behavioral equilibrium exchange rate (BEER) models, was Tk 121.55.
The gap stood at just 1.3 per cent, the lowest in years, indicating that the taka had finally converged close to its fair value.
For the first time in several years, both REER-based and model-based estimates pointed to near-equilibrium conditions.
The implication of taka overvaluation was profound. When the taka was heavily misaligned, exporters lost competitiveness in global markets, imports became artificially cheaper, and remittances increasingly bypassed official channels.
These distortions widened current account deficits and drained reserves, forcing the country to borrow more, adding to external vulnerabilities.
Businesses faced uncertainty in pricing and planning, as abrupt corrections became inevitable once pressure on reserves mounted.
Now, with the exchange rate near equilibrium, these adverse impacts are expected to ease.
Exporters gain fairer prices, remittances through banking channels improve as migrants find official rates attractive, and reserves are no longer drained by costly interventions.
Bangladesh Bank鈥檚 analysis suggests that the equilibrium level is around Tk 121鈥�122 per dollar, nearly identical to the current market rate.
If the new market-based system is maintained consistently, it could provide sustainable external balance and shield the economy from disruptive adjustments.
While no method of estimating equilibrium is flawless, the sharp reduction in misalignment points to real progress, the BB report said.
