[ad_1]
Despite the coronavirus epidemic, the country’s foreign exchange reserves have reached a record 3.9 billion pounds, according to the Bank of Bangladesh.
The coronavirus crisis has hit many countries in the world economically. However, the record remittances occurred in June and July. At the same time, the decline in imports has contributed to the increase in reserves, analysts say.
But what does it mean to increase a country’s foreign exchange reserves? What are the advantages or disadvantages of increasing reserves?
Foreign reserves and reserves
Financial institutions in a country have to deposit a part of the total amount taken as deposit in the Central Bank (Bank of Bangladesh). This means that they cannot spend on loans or anything else.
Foreign exchange reserves are the foreign exchange reserves held by the Central Bank after the exclusion of foreign exchange from exports, remittances, loans or imports from foreign sources, repayment of loans and interest, education abroad, etc.
What if there is a foreign reserve?
Economist Nazneen Ahmed says that having enough foreign exchange means economic power. Due to globalization, we have to deal with other countries. As a result, we have a reserve of foreign exchange reserves. It is then used to cover the cost of imports, to pay interest on foreign loans, etc.
Without him, a country is in crisis, he says.
How long will the reservation be stored?
Economist Nazneen Ahmed says that having foreign reserves means that we have the ability to import. Economic theory states that a country must have a foreign exchange reserve equivalent to the cost of three months of imports.
However, Bangladesh now has a reserve of £ 39 billion, which, compared to last year’s imports, has the potential to cost more than six months.
Why Forex Reserve Records?
Economists are citing a number of reasons for the record foreign exchange reserves right now.
Remittances have increased, which means that workers working abroad are sending more money home right now. Many have come to the country with money saved by earning money abroad.
Remittance income is legally increasing as the government has maintained a 2 percent incentive on remittance income.
The use of and demand for imported products has declined as trade has stagnated due to the coronavirus. As a result, foreign exchange has also been saved. Furthermore, foreign exchange has increased as exports continue.
Raw materials have not been imported or reduced in recent months due to the decrease in production in industrial establishments due to coronavirus.
Due to the suspension of large-scale development activities, the foreign currency deposited in the bank was not spent.
Bangladesh’s use of foreign currency has decreased as it has been isolated from the world for some months.
No new factories have been built in recent months due to the coronavirus. As a result, dollars have been earned, but not spent.
How is the use of foreign exchange reserves?
Nazneen Ahmed says that if you have enough foreign reserves, you have to think less when borrowing from abroad. In addition, many businessmen also took loans from foreign banks. That must also be paid in foreign currency.
The value of imported goods must be paid in foreign currency. For that, any country needs to have enough foreign exchange reserves. As a result, there is no need to worry about imports. In a country like Bangladesh, imports are more than exports. As a result, in this case, the foreign exchange reserves must be higher.
Is there any aspect of loss if the reserve increases?
Professor Nazneen Ahmed says that while the news of a currency surge is positive, it has some detrimental effects if reserves rise or are frozen for a long time.
“The increase in remittances means that new money has entered the country’s economy. That is why there is a lot of inflation.” Because those who have new money, they spend that money, the price of things goes up. “
However, he says that this year the concerns are less, because people are already in danger from Corona. In many ways, your income has decreased. As a result, even if remittances come in, the risk of inflation is low.
However, if there is a long-term reserve, if it is not used for other purposes, then it should be understood that the import has decreased, that is, the amount of human consumption has decreased. That means that imports are not growing.
In particular, it must be taken into account whether the import of capital goods and industrial raw materials has decreased. Because if that’s the case, it indicates the loss of the economy, ” he says.
He says that long-term foreign exchange reserves mean that low import growth means the economy is stagnating and trade is not moving as expected. BBC
[ad_2]
