43 Exchange rate, reserves and capital account

Chapter 43 of 60 in the Bangladesh 2036 research base. Contents of the series.

The float bought a real buffer, but the capital account under it is nearly empty of private capital

Chapters 03 and 05 told the external and monetary stories at the level of the headline series: the compression of FY23, the float of May 2024, the reserve rebuild and the disinflation squeeze. This chapter goes one level deeper into the machinery those stories used: the exchange rate regime sequence, the two measures of reserves and the gap between them, the import rationing that preceded the float, the kerb market and its enforcement record, and the capital account rules that decide what private money can enter and leave. The thesis it defends is that the 2024 to 2025 repair is genuinely different from the repairs of FY23, because it cleared through price rather than through rationing, but the buffer it produced is a central bank buffer, not a market one: foreign holdings of Bangladeshi portfolio securities have fallen from 3,419.85 million USD at end-2017 to 485.41 million USD in the 2025 round of the IMF survey [IMF CPIS 2025], the inward FDI stock has been flat near 18 billion USD since 2022 [IMF CDIS 2024], and the FY25 financial account, measured by Bangladesh Bank, nets to roughly 599 million USD of inflow, chapter arithmetic on the published 7,234.0 crore BDT total at the fiscal year average rate of 120.82 BDT per USD [BB Econ 2025]. A balance of payments defended by remittances and official money can be run conservatively for a decade; one defended additionally by private capital would self finance. Whether the float and positive real interest rates convert the second regime on, in the window the chapter 15 scenarios assume, is the decade's monetary question.

The record: three exchange rate regimes in four years and a reserve trough of 18.6 billion USD

The taka ran through three regimes in the four fiscal years to FY25. In the first, it sat between 84.81 and 86.30 BDT per USD on a fiscal year average basis through FY21 and FY22, with an end FY21 print of 84.8125 and an end FY22 print of 93.4500 [BB AR 2024, Table XXI]. In the second, the crawl, the end month rate stepped from 93.45 in June 2022 to 106.00 in June 2023 and then held a band of 110.0 to 110.5 from October 2023 through April 2024 on the BIS end of month series, which is the hold chapters 03 and 05 call the peg [BIS 2026]. In the third, Bangladesh Bank set a crawling peg mid rate of 117.00 BDT per USD on 8 May 2024, with banks free to deal around it, and the rate depreciated 10.17 percent across FY24 to close the year at 118.00 [BB AR 2024, paragraphs 4.04 and 9.39]. The crawling peg itself ended on 14 May 2025, when Bangladesh Bank issued FE Circular No. 18 allowing the exchange rate to move freely; the taka depreciated mildly through late May 2025, then held broadly stable with an appreciation bias in June, closing FY25 at 122.77 BDT per USD, a depreciation of 3.89 percent over the fiscal year [BB MPS 2025]. Bangladesh Bank has also published a twice daily FX spot reference rate, a weighted average of freely quoted rates, since 12 January 2025 [BB MPS 2025]. From the float onward the market set the pace: end month prints of 117.7 in May 2024, 120.0 in August 2024, 122.9 in May 2025, 122.3 in December 2025 and 122.75 in May 2026 [BIS 2026]. The official fiscal year averages mark the same path: 99.4473 in FY23, 111.0436 in FY24 [BB AR 2024, Table XXI], and 120.82 in FY25 on chapter arithmetic across the twelve monthly interbank averages in the Bangladesh Bank table [BB Econ 2025, table IB]. The latest readings sit at 121.8008 end September 2025 [BB Econ 2025, table IB] and 122.60 BDT per USD in the 4 September 2026 snapshot [BB Econ 2026], a two sided drift within a narrow band rather than a one way slide.

The competitiveness arithmetic behind the band is uncomfortable. The nominal effective exchange rate, on Bangladesh Bank's trade weighted 18 currency basket with FY16 as base, fell 6.82 percent in FY24, but the real effective exchange rate fell only 0.26 percent in the same year [BB AR 2024, chapter 1], because trading partner inflation outran domestic inflation even at 9 to 10 percent. The float delivered a nominal depreciation that roughly restored but did not secure real depreciation, and the real rate is the one that prices garments against Vietnam.

Reserves carry two measures and the difference is itself a series. On the gross measure Bangladesh Bank reports, the stock fell from 46,391.44 million USD at end June FY21 to 41,826.73 at end FY22, 31,202.98 at end FY23 and 26,714.24 at end FY24; on the BPM6 measure the printed series starts at 24,753.89 million USD at end FY23 and 21,686.34 at end FY24 [BB AR 2024, Table XX]. The monthly record then shows the full cycle: a BPM6 trough of 18,646.2 million USD in May 2024, the float month, a second trough of 18,611.4 in November 2024, and a rebuild to 26,740.0 by end June 2025 and 26,603.7 at end September 2025, 33.95 percent above a year earlier, with the gross measure at 31,426.8 million USD the same date [BB Econ 2025, table IB]. The rebuild continued into October, with BPM6 reserves at 27,330.19 million USD on 16 October 2025 [BB Econ 2025]. On the IMF's international investment position measure, which chapters 03 and 15 use, reserve assets ran from 46.2 billion USD at end-2021 to 21.4 billion at end-2024 [IMF IIP 2024], the same story at annual frequency. Cover ratios give the adequacy read: on the gross measure, the FY24 close covered 4.4 months of goods and services imports [BB AR 2024, paragraph 9.40], and the end FY25 position covered 4.2 months on the BPM6 measure and 5.0 months on the gross measure, chapter arithmetic on the Bangladesh Bank payments table at the FY25 average rate [BB Econ 2025, tables IA and IIIA].

Three qualifications keep the buffer honest. First, the gross measure has included the IMF reserve position since April 2018 under the Bank's own reporting note [BB Econ 2025, table IB note]. Second, the gap between the measures, 5,032.0 million USD at end June 2025 and 4,823.1 at end September 2025 [BB Econ 2025, table IB, computed], is the reserve stock that the BPM6 definition nets out because it is offset by short term obligations, and its size means roughly a sixth of the headline stock is already spoken for; the Bank does not publish the item level decomposition in any source available to this chapter; the breakdown could not be confirmed and sits in the Bank's reserve notes. Third, the net international reserves measure the IMF programme tracks nets out more items still, and its floor and outturns are not stored in the data lake; the programme reviews are the resolving source; chapters 03 and 42 flag the same figure as unconfirmed.

Mechanism: the peg taxed inflows until rationing took over, then the float repriced the same flows

The FY24 defence has a price tag. Bangladesh Bank sold a net 9.41 billion USD to banks in FY24 to hold the rate near its band [BB AR 2024, chapter 1], which is the mechanism by which a 26,714.24 million USD gross reserve at end FY24 was reached from 31,202.98 a year earlier: the central bank absorbed the difference between the official rate and the rate that would have cleared the market, and the buyers of that difference were importers whose demand the peg was subsidising. The administrative layer then did what the price would not. Import letters of credit opened in FY24 totalled 68,766.62 million USD, up only 0.76 percent on FY23, but settlements fell 8.26 percent to 66,066.92 million USD, consumer goods openings fell 11.56 percent, capital machinery openings fell 10.91 percent and capital machinery settlements fell 23.68 percent, while back to back LCs for the export sector opened 12.75 percent higher [BB AR 2024, Table XIX]. The pattern is the fingerprint of a rationing regime: the state kept the export sector's input pipeline open and squeezed consumer and investment imports, which is why the compression of FY23 could flatter the current account while starving the growth account that chapter 01 documents.

The kerb market priced what the official rate refused to admit, and it is the least measured series in this chapter. A kerb rate series is catalogued for this research base but carries no observations in the data lake, so every specific premium figure could not be confirmed and the premium's behaviour must be read through consequences rather than quotes: the premium made hundi the profitable channel, remittance senders routed around banks, and the enforcement record shows the scale of that routing. In FY24 the financial intelligence function suspended transactions of 37,809 mobile financial service accounts suspected of hundi activity, suspended 6,201 MFS agents, regularised 2,048 of the suspended accounts and recovered 3.07 crore BDT, and blocked 455 websites, 35 apps and 707 social media pages tied to illegal forex and gaming operations [BB AR 2024, chapter 12]. The float attacked the same problem at the price level: once the bank rate moved to 117.7 and then past 120, the incentive to route a remittance through the kerb market collapsed, and the formal channel recorded 30,328.80 million USD in FY25, up 26.8 percent, the step chapter 03 documents [BB Econ 2025, table XVIII]. Enforcement persisted as backstop rather than as the mechanism.

The float's effect on the balance of payments is visible line by line in the Bangladesh Bank accounts, in crore BDT. The current account deficit ran 154,502.7 crore in FY22, 108,558.7 in FY23 and 69,881.1 in FY24, then turned to a surplus of 2,003.4 crore in FY25, with July 2025, the first month of FY26, again in surplus at 3,004.6 crore [BB Econ 2025, table IIIA]. The capital account, almost entirely official transfers, added 4,538.6 crore in FY25 [BB Econ 2025, table IIIA]. The financial account is where the regime change shows. Bangladesh Bank's presentation writes the account negative when inflows dominate: the total ran minus 172,346.1 crore in FY22, minus 148,388.4 in FY23 and minus 100,151.2 in FY24, then only minus 7,234.0 crore in FY25, near balance [BB Econ 2025, table IIIA]. The IMF's calendar year record for the same account shows the earlier shape of the cycle: 16.7 billion USD of net financial inflows in 2022 falling to 3.3 billion in 2023 [IMF BOP 2023], the crisis unwind that chapters 03 and 15 read. Inside the FY25 total, direct investment ran minus 20,778.0 crore, portfolio investment plus 1,822.8 crore, a small net outflow in the Bank's sign convention, other investment minus 39,803.3 crore and reserve assets plus 51,524.4 crore, the last figure being the reserve accumulation the float and the remittance surge financed [BB Econ 2025, table IIIA]. The portfolio sign is the foreign exit printed in the Bank's own account: registered foreign investors were net sellers in FY25 just as the survey stock was falling to 485.41 million USD [IMF CPIS 2025]. The composition, not the total, is the decade's fact: the account balances because a state bank accumulates reserves, not because private capital is arriving in volume.

The capital account itself: equity is admitted, debt and portfolio are rationed, and what was admitted has stopped growing

Bangladesh's capital account is managed under the foreign exchange regulation framework the central bank administers: foreign direct investment enters with repatriation rights for capital, profits and dividends on approval, foreign portfolio investors trade listed equities after registration with the securities regulator, and residents face low annual ceilings on outward personal investment and on holding foreign assets. The design is a rationing architecture the mirror image of the FY23 LC regime: inflows of the productive kind are encouraged, outflows of every kind are queued. No reform of the architecture itself is recorded in any source available to this chapter, and any specific ceiling or circular number here is deliberately omitted rather than left as an unconfirmed figure.

What the survey data say about the design's output is stark. The IMF's coordinated portfolio survey measures what nonresidents hold of Bangladeshi securities: total portfolio liabilities peaked at 3,419.85 million USD at end-2017, were 2,390.00 at end-2021, 1,596.25 at end-2022, 1,445.52 at end-2023, 952.00 at end-2024 and 485.41 in the 2025 round, with equities falling from 2,136.95 million USD at the 2017 peak to 305.27 and debt instruments from 1,637.31 to 166.85 [IMF CPIS 2025]. The direction is a market closing, not a position cycling: foreigners have exited about four fifths of what they held at the peak through the years in which the sovereign was downgraded and the currency was held at an official rate they did not believe. The mirror position, residents' holdings of foreign portfolio securities, stood at 91.69 million USD in the same 2025 round against 3,584.39 million at the end-2018 print, a series discontinuity that itself marks how tightly the outward window is administered [IMF CPIS 2025]. Bangladesh is therefore the rare emerging market whose portfolio problem is not volatility but absence: there is no foreign base money to flee, and no domestic market depth to flee into.

Direct investment, the one admitted channel, has stopped compounding. The IMF survey stock, which chapter 03 tracks, sat at 17,857.21 million USD at end-2024 against 20,808.40 at end-2021 [IMF CDIS 2024]. Bangladesh Bank's own stock measure, on the own funds at book value concept, printed 18,955.35 million USD at end FY25, composed of 10,871.19 of equity, 4,798.46 of reinvested earnings and 3,285.70 of intra company loans [BB Econ 2025, table IIIB]. The flow record explains the stall: FY25 inflows totalled 1,686.24 million USD, of which equity was 554.77 and reinvested earnings 758.11, and the quarterly path ran 104.33 in July to September 2024, 490.40 in October to December, 788.24 in January to March 2025 and then 303.27 in April to June, a 61.53 percent quarter on quarter fall into the year's final quarter [BB Econ 2025, table IIIB]. Reinvested earnings being the second component is the one healthy sign, because it is capital that chose to stay; the intra company loan component, 373.36 million USD in FY25 [BB Econ 2025, table IIIB], is the weak sign, because it often represents parent balance sheets funding working capital their subsidiaries cannot raise locally, which is the banking problem of chapter 06 seen from the parent's side. The outward stock completes the picture: 3,390.70 million USD at end-2021, 2,243.78 at end-2023 and 566.71 at end-2024 [IMF CDIS 2024], a fall that owes something to valuation and something to repatriation of the state's and houses' own placements, and which confirms that when Bangladeshi money could leave, it did.

The repatriation question, whether profits and dividends trapped by the FX shortage of FY22 to FY24 have been cleared, has no published stock in any source available to this chapter and could not be confirmed as a figure. Its mechanism is nonetheless first order for the decade: every dollar of uncleared dividend is a contingent claim on the reserves and a reputational tax on every future equity inflow, and clearing it was among the demands foreign investors made of the post 2024 transition government in the assessments this research base carries qualitatively [IMF Art IV 2025] [WB BDU 2025].

The decade ahead: the programme sets the near term floor, the election and graduation set the regime test

The IMF projects the current account at minus 0.9 percent of GDP for its 2026 WEO year and minus 1.2 percent for 2027 [IMF WEO 2026], deficits small enough to finance through normal channels provided the remittance regime holds. The financing mix behind those deficits shifts underfoot: graduation, dated 24 November 2026 but under UN General Assembly review after CDP recommended extending the preparatory period, would start the clock on the borrowing terms shift that chapter 02 dates, and the 2025 assessments project it will raise average interest and shorten maturities on new external borrowing [IMF Art IV 2025] [WB BDU 2025], and the IMF amortisation schedule that chapter 42 decomposes puts the Fund's own repayments in the FY28 to FY29 window, targeting a start of 29 July 2027 on the extended facility [BB AR 2024, chapter 12]. The reserve policy question that follows is the one this chapter owns for the watch list: when the programme's quantitative floors lapse, the Bank must set its own reserve target, and the honest choice is between the BPM6 measure it now publishes and the net measure the programme used, with the gross measure available as the political temptation.

Four decisions mark the regime test. First, the defence doctrine: whether the Bank lets the rate move two sided and intervenes only to smooth, which the FY25 to FY26 record so far resembles, or reverts to holding a level while reserves pay. Second, the reserve composition: whether the gap between the gross and BPM6 measures, 4,823.1 million USD at end September 2025 [BB Econ 2025, table IB, computed], is run down to a rounding error, which would mean the settlement liabilities inherited from the rationing years are cleared, or allowed to re widen the next time energy payments squeeze. Third, the portfolio window: whether the securities regulator and the Bank re-open registered foreign investor access with repatriation guarantees at the moment of maximum foreign absence, 485.41 million USD of holdings [IMF CPIS 2025], or leave the market domestic only, stalling chapter 07's capital market agenda. Fourth, the repatriation guarantee: whether dividend clearance is published as a stock being reduced, converting an unconfirmed backlog into a monitorable series. The chapter 15 scenarios split on these: the reform scenario assumes a two sided float, a self set BPM6 anchored target and a reopened portfolio window; the stall scenario assumes a re-pegged band defended with reserves, a revived kerb premium and a portfolio market that stays empty; the baseline assumes drift with the rate crawling with inflation differentials and reserves rising slowly.

Risks print in the reserve accounts and the upside is a capital regime that finances itself

Risks. First, re-pegging under political pressure: the rate has moved 43 percent since end-2021 and every import using sector has a case for relief, and a new government holding a nominal band while reserves fund the difference would rebuild the FY22 to FY24 mechanism within a budget year; the revealing indicator is an end period rate held inside a 1 percent band for two consecutive quarters while the reserve stock falls, and the kerb premium reappearing in remittance channel data as formal flows flatten [BB Econ 2025, tables IB and XVIII]. Second, the reserve illusion: the headline build to 26,603.7 million USD BPM6 [BB Econ 2025] overstates usable buffers by the gap to the gross measure and by any NIR shortfall against the programme floor, and an import rebound at the 9.49 percent July to September 2025 pace against 5.26 percent export growth would eat it from the current account side [BB Econ 2025, table IB]; the revealing indicator is the gross minus BPM6 gap re widening above 6,000 million USD. Third, the private capital exit completing: portfolio holdings below a quarter of a billion USD and FDI inflows under a billion USD would make the external account structurally dependent on remittances and official lending, at which point sovereign risk pricing and the exchange rate regime become one variable; the revealing indicator is the annual survey stock and the quarterly FDI series [IMF CPIS 2025] [BB Econ 2025, table IIIB].

Upside. First, the formalisation dividend has room: remittances rose 26.8 percent in FY25 on the rate alone [BB Econ 2025, table XVIII], chapter 21's corridor analysis shows the skilled share of outflows can rise, and every point of additional formalisation is reserve accumulation without borrowing. Second, the portfolio reopening option: an equity market at trough foreign holdings with a floated currency and positive real deposit rates is the configuration from which frontier portfolio inflows historically start, and the decision is administrative rather than fiscal [IMF CPIS 2025]. Third, the FDI reinvestment base: 758.11 million USD of FY25 inflows were earnings that stayed [BB Econ 2025, table IIIB], and a published repatriation guarantee plus the energy contracting fixes chapters 10 and 45 describe would convert that base into the equity financed external account the chapter 15 reform scenario assumes.

What to watch: five indicators whose thresholds mark the regime

1. The gross minus BPM6 reserve gap. Current value 4,823.1 million USD at end September 2025, computed from the Bank's two published measures [BB Econ 2025, table IB, computed]. Threshold: a fall below 2,000 million USD means the settlement liabilities of the rationing years are cleared and the gross headline becomes credible; a re widening above 6,000 million USD means payment deferrals are again flattering the stock.
2. Import cover on the honest measure. Current value 4.2 months of goods and services imports on BPM6 reserves at end FY25, chapter arithmetic on the Bank's payments and reserves tables [BB Econ 2025, tables IA and IIIA, computed]. Threshold: below 3.0 months is the crisis management zone the rationing years came from; above 6.0 months is normal management for this decade.
3. The two sided float test. Current values: 121.8008 end September 2025 [BB Econ 2025, table IB] and 122.60 BDT per USD in the 4 September 2026 snapshot [BB Econ 2026]. Threshold: six months with the end period rate inside a 1 percent band while reserves fall is the re-peg signal; a real effective exchange rate appreciating more than 5 percent in a year on the Bank's own index [BB AR 2024, chapter 1 basis] is the competitiveness signal that the float has overshot upward.
4. Foreign portfolio holdings. Current value 485.41 million USD in the 2025 round of the IMF survey, against a 3,419.85 million USD end-2017 peak [IMF CPIS 2025]. Threshold: a recovery above 1,500 million USD would mark the portfolio regime reopening; a fall below 250 million USD marks the foreign exit completing and the market going structurally domestic.
5. FDI inflows. Current value 1,686.24 million USD in FY25 with a 303.27 million USD final quarter [BB Econ 2025, table IIIB]. Threshold: two consecutive years above 3,000 million USD, the FY19 print of 3,482.69 million USD being the reference boom year on the Bank's basis [BB Econ 2025, table IIIB], would mark the equity financed external account; a year below 1,000 million USD marks the stall path for the capital account.

All five draw on series already published monthly to annually; none needs a new statistical programme.

Sources used

[BB AR 2024] Bangladesh Bank Annual Report 2023-24, read via ocr_text/bb/annual_report/ar2023-2024.txt: Table XXI exchange rates, Table XX reserves gross and BPM6, Table XIX opening, settlement and outstanding of import LCs, chapter 1 net foreign exchange sales of 9.41 billion USD and NEER and REER movements, paragraph 4.04 introduction of the crawling peg, paragraph 9.39 crawling peg mid rate of 8 May 2024, paragraph 9.40 the 4.4 month gross import cover at end FY24, paragraph 12.28 the IMF repayment schedule, chapter 12 BFIU hundi enforcement. [BB Econ 2025] Bangladesh Bank Monthly Economic Trends, October 2025 (data/bb/remittances/economic_trends_october_2025.pdf), tables IA, IB, IIIA, IIIB and XVIII: exports, imports, gross and BPM6 reserves, interbank exchange rates, balance of payments in crore BDT, FDI inflows and stocks by component, remittance inflows. [BB MPS 2025] Bangladesh Bank Monetary Policy Statement, July to December 2025, section 2.6, https://www.bb.org.bd/monetaryactivity/mps/mps_h1fy26.pdf, read 2026-09-06: crawling peg ended 14 May 2025 via FE Circular No. 18, FY25 close 122.77 BDT per USD and 3.89 percent FY25 depreciation, twice daily FX Spot Reference Rate published since 12 January 2025. [BB Econ 2026] Bangladesh Bank indicator snapshot updated 2026-09-04 via bdpolicy.db indicators table, series: usd_bdt_rate. [BIS 2026] Bank for International Settlements USD/BDT monthly end of period series via bdpolicy.db, series: bis_usd_bdt_monthly_eop. [IMF BOP 2023] IMF Balance of Payments statistics, BPM6 presentation, via bdpolicy.db, series: imf_bop_financial_account_balance; calendar year basis, not joined to Bangladesh Bank fiscal year tables. [IMF IIP 2024] IMF International Investment Position via bdpolicy.db, series: imf_iip_reserve_assets_total_usd_m. [IMF CDIS 2024] IMF Coordinated Direct Investment Survey via bdpolicy.db, series: imf_cdis_inward_fdi_stock_usd, imf_cdis_outward_fdi_stock_usd. [IMF CPIS 2025] IMF Coordinated Portfolio Investment Survey via bdpolicy.db and data.imf.org pull curated/imf/imf_cpis_portfolio_bd.parquet, series: imf_cpis_portfolio_liabilities_total_usd, imf_cpis_portfolio_equity_liabilities_usd, imf_cpis_portfolio_debt_liabilities_usd, imf_cpis_portfolio_assets_total_usd. [IMF WEO 2026] IMF World Economic Outlook, current account balance percent of GDP; bdpolicy.db indicator imf_current_account_pct_gdp holds zero rows, read instead from parquet data/trade/bd_imf_weo.parquet; WEO year basis (fiscal or calendar) not resolved in this chapter's sources. [IMF Art IV 2025] IMF Article IV staff assessment and programme reviews, Bangladesh, financing terms direction and repatriation demands, qualitative. [WB BDU 2025] World Bank Bangladesh Development Update, external financing outlook, qualitative.

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Verified line by line against primary sources: 113 claims checked, 5 corrected.

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