How a strong US dollar led by US monetary policy is creating problems for emerging market countries like Bangladesh

Written By: Saldana Rahaman Safa

It would not be wrong to say that developing countries live their economic lives under the grace of the US Federal Reserve. When US monetary policy is loose, capital is directed toward emerging economies, which makes it simpler for these nations to raise their funding. Additionally, the wave changes direction as capital seeks out higher returns in the US when the Fed tightens, as it is currently doing. So, the local currency declined in value due to the dollar market’s extreme volatility.

For emerging economies, having a stronger dollar makes life difficult in many ways, and depreciating the local currency is the root cause of all these problems. Here, a stronger dollar tends to make the globe poorer and less trade-engaged because non-US currencies lose purchasing power as the dollar appreciates. For this reason, the emerging economies stumble to pay the price of imported goods, which disrupts trade growth. In this context, to stabilize the foreign exchange market, instead of 25 percent, the Bangladeshi central bank now requires a hefty minimum 50 percent cash LC margin on all non-essential purchases to control the cash outflow. As a result, disruption is visible in the supply sector for less importing goods, creating price hikes. To sum up, if the volatility of the dollar rate continues to surge like this, the ride of development will be bumpy for emerging countries like Bangladesh.

Featured Image Courtesy: The Economic Times 


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