Floating of Taka

 In the year 2000, BB relaxed foreign currency dealing, allowing authorized dealers to transact dollars with Bangladeshi Bank. Earlier the banks were obliged to transact at certain fixed rates. In 2002, MOF has reformed exchange rate policy further. Foreign exchange in current account has been made free floating.

 A free floating exchange rate of Taka increases foreign exchange volatility. There are economists who think that this could cause serious problems, especially in emerging economies like Bangladesh. These economies have a financial sector with one or more of following conditions:

 ·    high liability dollarization

·    financial fragility

·    strong balance sheet effects

 

In cases of extreme appreciation or depreciation, Bangladesh Bank will normally intervene to stabilize the currency. Thus, the exchange rate regimes of floating currencies may more technically be known as a managed float. Bangladesh bank might, for instance, allow a currency price to float freely between an upper and lower bound, a price "ceiling" and "floor". Management by Bangladesh Bank may take the form of buying or selling large lots in order to provide price support or resistance or, in the case of some national currencies; there may be legal penalties for trading outside these bounds.