Bangladesh Bank’s strategic view to accumulate foreign currencies for a “rainy day” may not be the smartest choice.
There may be opportunity costs in keeping all of the record $16bn reserves relatively idle. Such surplus money may be better invested to leverage inward investment, help drive import costs down and generate faster growth for business.
The recent slowdown in imports exposes doubts from the business sector and fears of political unrest. Thus, the present bulge in reserves may be a false dawn and a precursor to stagnation or even recession. If it serves no purpose other than as a “feel good factor,” this is only good for billboards.
The Bangladesh Bank has not adequately defined what it terms as a “rainy day.” The wisdom of passing on present opportunities in favour of controlling damage that may or may not occur in future is, at best, debatable.
If the Bangladesh Bank foresees dire straits, should the political scene deteriorate further, then Bangladesh Bank and the government will be better advised to act now to prevent such “rainy days” from happening altogether. Improving governance and proactively reviewing opportunities to use some of the reserve funds may be a better course to secure wider national interests.
We need to make sure the real economy which we have set our feet on is as strong as the crust appears.