IMPACT OF FLOATING EXCHANGE RATE ON ECONOMIC INDICATORS OF BANGLADESH: A CASE STUDY

Abstract

In past few years there has been a lot of controversy about the appropriateness of the exchange rate system adopted by the country. Bangladesh has been pursuing a liberal trade policy consistent with the trend of free market economy and WTO agreement. In process of liberalization of the economy, Bangladesh adopted a free-floating exchange rate system since May 31, 2003. The level and extent of movement of exchange rate have a significant impact on the macroeconomic variables of the economy. On the other hand, unsustainable economic policies and other factors also lead to a volatile exchange rate. Both the fixed and floating exchange rates have their own merits and demerits. The present article offers an analytical discourse on the prospects and implications of floating exchange rate in Bangladesh. The study is mainly exploratory in nature. In this study the authors have tried to assess the impact of new exchange rate system on the economy of an underdeveloped country like Bangladesh.