Floating Exchange Rate Regime

In recent years, many developing countries having a history of high inflation, unfavorable balance of payment situation and a high level of foreign currencies denominated debt, have switched or are in the process of switching to a more flexible exchange rate regime. Therefore, the stability of the exchange rate and the dynamics of its volatility are more crucial than before to prevent financial crises and macroeconomic disturbances. This paper is designed to find out the reasons behind Bangladesh’s exit to floating exchange rate system and evaluate its performance under the new regime. It’s found that, the shift to market based floating exchange rate for the Taka was a major step towards protecting the country’s external competitiveness and insulating the country from adverse external shocks. The comparisons of selected economic indicators during the first three year’s experience under the new regime showed an impressive effect on the economy of Bangladesh specially export growth, low volatility of exchange rate, towering foreign exchange reserve etc.