Federal Reserve’s Influence Over the Bangladeshi Taka

Abstract

This paper investigates the relationship between the Bangladeshi Taka (BDT) and the U.S. Federal Reserve's monetary policy, particularly the impact of changes in the U.S. Effective Federal Funds Rate (EFFR) on the Taka's valuation. Despite Bangladesh's steady economic growth from 2003 to 2023, the Taka consistently depreciated against the U.S. Dollar, especially during periods of increased EFFR. The study contrasts the Taka's behaviour with other South Asian currencies, finding that the Taka's depreciation pattern is uniquely correlated with EFFR changes, unlike its regional counterparts. This correlation suggests that external factors, specifically U.S. monetary policy, significantly influence the Taka's value. This insight challenges the local perspective attributing the Taka's depreciation solely to domestic policy failures, emphasing the need for considering global economic influences in the depreciation of the Bangladeshi Taka.