Once upon a muggy July morning in Dhaka, a group of economists gathered at a tea stall in Motijheel, trying to explain the latest central bank policy to a rather confused stray cat. "You see," said one, swirling his tea like a magic potion, "Bangladesh Bank bought dollars, not because they were cheap, but to stop them from getting cheaper." The cat, unimpressed, continued licking its paw. Another economist pulled out a chart, waved it around like a sacred text, and declared, "It's a market-friendly intervention!" At that moment, a pigeon swooped in, stole the chart, and dropped it near the Exchange Building. Some say it was symbolic: the market had spoken, and it wanted fewer charts and more clarity.
But clarity is exactly what the central bank was trying to deliver, albeit in its own cryptic way, when it launched its first-ever dollar purchase auction on July 13, 2025, scooping up $171 million at Tk 121.50 per dollar. To the untrained eye, this might appear as just another technical transaction. But in truth, it was a strategic spectacle, a deliberate deviation from decades of command-style currency management, and the beginning of a new experiment in monetary realism (with just enough smoke and mirrors to keep things interesting).
For years, Bangladesh's economic story has revolved around a single, recurring nightmare: dollar shortages. Born from a post-war economy with no reserves and excessive dependence on aid, the country evolved, but unevenly. It built its foreign earnings around just two fragile pillars: ready-made garments and remittances. When global demand wavered or workers abroad faced shocks, the foreign exchange well dried up. Meanwhile, the country's appetite for imports, food, fuel, machinery, remained insatiable, creating a chronic mismatch. By 2023, the system cracked. Reserves nosedived from $48 billion to $20 billion, cargo ships sat unpaid off Chattogram port, and big companies bled penalties in thousands of dollars a day. Stability had come to mean distortion.
But this auction, curiously enough, was born out of excess rather than desperation. Inflows were up: remittances had jumped, and imports had cooled, partly because of the government's tightening of capital machinery purchases. Suddenly, dollars weren't scarce, they were slipping through the cracks. The taka started to rise dangerously fast. From Tk 123 to Tk 120 in a week might seem like a gentle breeze, but in Bangladesh's volatile forex landscape, it felt like a windstorm. Exporters began to panic: would their goods become uncompetitive overnight? Would remitters divert funds to the black market? Would the dreaded hundi operators dance in glee?
Bangladesh Bank's answer was both calculated and unprecedented. By buying dollars rather than selling them, and doing so through an auction, it created a new floor without heavy-handed intervention. It paid Tk 121.50, a bit more than the market rate and a nudge above the Real Effective Exchange Rate of Tk 121.13. This was no random number. It was a clear signal: we're letting the market breathe, but not collapse into chaos.
This hybrid mechanism, structured, transparent, and slightly theatrical, offered several benefits. It stabilised the currency, discouraged unofficial remittance routes, and brought discipline to the banks. Participants submitted their bids via email by 4 PM like obedient students turning in essays. And since it was a single-price auction, everyone got the same rate, thus minimising the classic Bangladeshi drama of last-minute lobbying and undercutting.
However, underneath this surface calm lies a trembling infrastructure. The auction might have been smart, but it didn't solve the fundamental problem: Bangladesh's forex system remains brittle. The reliance on garment exports and short-term remittance surges is still dangerously unbalanced. Structural diversification is minimal, and the investment climate hasn't picked up. Imports of capital machinery, usually a leading indicator of growth, have shrunk, not because the country doesn't need them, but because businesses are nervous about the future.
And then there's the irony of a stronger taka. In a world where India and Sri Lanka are letting their currencies slide to boost exports, Bangladesh is doing the opposite. A firm taka makes garments more expensive abroad, possibly strangling the country's competitive edge. But letting it weaken too much invites hundi havoc, and punishes exporters who borrowed in dollars. This is the monetary equivalent of walking a tightrope in a hurricane, while IMF bureaucrats watch from below with clipboards.
Indeed, the IMF looms large in this tale. Bangladesh received $4.7 billion in loans with a key demand: make the exchange rate market-driven. And the auction? It's a creative compromise. Not a return to the bad old days of fixed pegs and backroom deals, but not quite a free float either. One could call it "compliance theatre," where the central bank keeps the IMF happy without surrendering full control. After all, what's policymaking if not the fine art of pleasing the gods of Washington without enraging the people of Narayanganj?
But even the auction's apparent success hides fragile assumptions. Remittance surges may not last, much of it is driven by temporary Gulf demand and recent regularisations. Imports are artificially low, which could backfire as infrastructure decays. Reserves, while better, are still below the IMF's comfort zone of five to seven months of import coverage. And global tremors, from tariff shocks to climate disruptions, could wipe out this temporary cushion in a heartbeat.
Then there are the purists. The Austrian School economists, watching from their ivory towers, are fuming. In their eyes, any intervention, auction or otherwise, is heresy. Let the market find its price! Let pain do its job! Let economies collapse gracefully! They argue that auctions distort price signals, encourage hoarding by banks, and misuse reserves that could have tamed inflation instead. They make a fair point, in theory.
But Bangladesh, like many developing nations, lives far from the neat equations of Hayek and Mises. It must manage not just numbers, but narratives. In countries with thin forex markets and fragile investor trust, policy isn't just about efficiency, it's about psychology. Confidence must be curated like an art exhibition, and chaos must be neutralised before it turns political. The auction, then, is not a betrayal of free markets. It's a modified dance, a tango between idealism and pragmatism.
So what comes next? Most likely, more auctions, buying or selling depending on market flow. If done consistently, they may evolve into a soft exchange rate band, loosely pegged to the REER. But this will only work if deeper reforms follow: diversifying exports beyond garments, boosting FDI, and building institutional capacity. Otherwise, the next crisis will arrive in different packaging, forcing yet another round of desperate improvisation.
Still, for one brief moment in July 2025, the Bangladesh Bank did something that felt almost magical: it bought time, stability, and a little bit of credibility, all in one shot. And in a country where monetary policy is often overshadowed by political theatrics, that alone was a feat.
Back at the Motijheel tea stall, the cat, now curled under a newspaper with the headline "Auction Averts Forex Crisis", gave one last meow, as if to say, "Well played." The economists raised their cups in a silent toast. The pigeon returned, this time with a copy of the IMF loan terms in its beak. And the taka? It stood quietly at Tk 121.50, unsure whether it had just survived a crisis or become part of a larger illusion. Either way, it had learned to dance.
The writer is an Editor of Geopolits.com
