Our 10 Billion Dollars Foreign Currency Reserve

[FagunerAgun]

The Governor of Bangladesh Bank has been trumpeting our achievement in 10 billion US dollar reserve that is still growing.

But the Governor fell short of giving any planned strategy of successful transactions without destabilizing our economy and getting the best out of this amount of reserve.

The enemy number one of this reserve is the weakening US dollar; the present value of 10 billion US dollars has already lost a part of it as US dollar has weakened further.

Other countries have diversified their foreign currency portfolios, they have already bought Euros, some even Canadian dollars and some precious gold selling weak and weakening US dollars.

Now the Governor tries to invest part of this reserve in some private banks to get returns which may offset the value lost of this reserve because at this moment we can not buy gold as gold market has already skyrocketed and can fall any time, can not buy other powerful currencies as the value of Canadian dollars and Euros have gone up significantly as other countries like China, Russia and Brazil have already done those transactions, again selling US dollars from their reserves.

Now the question is: will the return from investments in private banks offset the lost value of our reserve because of weakening US dollars?

Some timely transactions in precious metals and other currencies with pro-activeness and foresightedness could have made our reserve more secured and bigger.

I hope they will learn from this missed opportunity and put their trumpet down in the box for now.

[BANFAN]

Great news. Like to see it going in trillions some day. Atleast the country feels safe to face uncertainities.

World is not sure how long the US $ will be worth holding, recently many emerging economies have started buying large amount gold to replace US $ reserves. We might think of converting of of the reserves to Gold. Incase $ falls sharply, we will have some safety. China & a few others are already talking about an international currency for reserves, instead of US $. Although some economists predict 20-30 years before we can effectively move in to some international currency.

[PoorFan]

I rather would suggest them to buy as much dollars as they can now, because big East Asian economy ( China, Japan, Korea, Taiwan etc. ) hugely depends on strong dollar. Dollar has [almost] hit the bottom of its value already and no way it can remain so or go down for long time. Already Japanese economy got hit by huge export revenue deficiency because of poor dollar exchange rate, so its highly unlikely that the dollar value will remain cheap for long time.

And few moths ago I also read somewhere in newspaper that buying European currencies or gold was in BB's consideration, but not sure if they actually did it. BB or our local banks should gather huge idol Taka in local market and buy dollar as much as they can so that the benefit of exchange rate may come in few weeks later.

[auntu]

Originally Posted by PoorFan
I rather would suggest them to buy as much dollars as they can now, because big East Asian economy ( China, Japan, Korea, Taiwan etc. ) hugely depends on strong dollar. Dollar has [almost] hit the bottom of its value already and no way it can remain so or go down for long time. Already Japanese economy got hit by huge export revenue deficiency because of poor dollar exchange rate, so its highly unlikely that the dollar value will remain cheap for long time.

And few moths ago I also read somewhere in newspaper that buying European currencies or gold was in BB's consideration, but not sure if they actually did it. BB or our local banks should gather huge idol Taka in local market and buy dollar as much as they can so that the benefit of exchange rate may come in few weeks later.

Not a bad call.

Still what the Governor is trying to do with the reserve is one of the few options in his hand. It's a critical juncture of time and I hope and pray IMF and WB's advice would be blown in the wind.

[FagunerAgun]

Originally Posted by PoorFan
I rather would suggest them to buy as much dollars as they can now, because big East Asian economy ( China, Japan, Korea, Taiwan etc. ) hugely depends on strong dollar. Dollar has [almost] hit the bottom of its value already and no way it can remain so or go down for long time. Already Japanese economy got hit by huge export revenue deficiency because of poor dollar exchange rate, so its highly unlikely that the dollar value will remain cheap for long time.

And few moths ago I also read somewhere in newspaper that buying European currencies or gold was in BB's consideration, but not sure if they actually did it. BB or our local banks should gather huge idol Taka in local market and buy dollar as much as they can so that the benefit of exchange rate may come in few weeks later.

This long term strategy is a good idea only if US dollar continues strengthening and in the mean time, we do not do any transactions with other countries like buying goods and services in US dollers, which is impossible.

But there is no sign of strong US dollar because US strategy now is to sell more goods to other countries to offset trade gap and bolster her manufacturing sector, to create employment, they need weak US dollar.

In our situation, as we have to do transactions in US dollars, we are losing in currency appreciation as US doller is getting weak and weaker.

My suggestion is to diversify part of our reserve with a short term strategy to offset the loss of the remainder of the portfolio in US dollars and to make some money as well.

[FagunerAgun]

Now BB is buying 10 tons of gold.
Had BB bought this amount of gold a couple of years ago, the price could have been under $1000 plus that could have given

1. Higher profit margin
2. Higher risk tolerance
3. More liquidity in the currency market.
4. Could have saved more foreign currency.
5. Less hedging cost, if BB decides to hedge.

It is difficult to understand BB's decision to buy this amount of gold when gold market has already been saturated so much.

[BANFAN]

Originally Posted by PoorFan
I rather would suggest them to buy as much dollars as they can now, because big East Asian economy ( China, Japan, Korea, Taiwan etc. ) hugely depends on strong dollar. Dollar has [almost] hit the bottom of its value already and no way it can remain so or go down for long time. Already Japanese economy got hit by huge export revenue deficiency because of poor dollar exchange rate, so its highly unlikely that the dollar value will remain cheap for long time.

And few moths ago I also read somewhere in newspaper that buying European currencies or gold was in BB's consideration, but not sure if they actually did it. BB or our local banks should gather huge idol Taka in local market and buy dollar as much as they can so that the benefit of exchange rate may come in few weeks later.

We don't have trade surplus to buy dollars. Our dollar reserves have increased due to remitance. So we have dollars in reserve, now we can buy other potential currencies or bonds or commodity. It's not a bad idea to buy gold. Even if US $ falls and other currency becomes dominant, Gold value remains. India, china and many others are buying golds currently.

Two days back there was a news on CNN that Japan is worried that china is buying large amount of yen and building reserves. This could be to raise the value of yen and reduce the demand of Jap products in int markets making it costly. Thus boost chineese export.

You can do these things when you have enough safe reserves. Gold is a safe reserve by all definition. I think BB is doing the right thing. FA bhai. BB didn;t have enough money when gold was $700. It is only now that we have reached to 10 billion reserves. They need to keep 2-3 billion cash for opening L/Cs against imports. So, we hardly have 6/7 billion to buy gold. Hope we don;t have to sell it again soon.

[Neel Here]

gold prices can only go up. major BRIC economies are diversifying their reserves in favour of gold.
India's central bank RBI bought 200 tonnes from IMF last quarter of 2009. Russia bought about 50 tonnes and China 190 tonnes.

even more importantly, private demand in both China and India is sky-rocketing, so much so that China has almost caught up with India as the largest consumer of gold. to put things in perspective India's consumption was 480 tonnes per year while China's was something like 430 tonnes with both numbers expected to rise steadily over the next few years with rising affluence.
read this http://www.nuwireinvestor.com/articl...old-55968.aspx

in conclusion, BB's decision will prove a good one in the long term. dollar is shaky and a further destabilisation could very well witness a common international currency replacing the $. it's better to spread the eggs.

[FagunerAgun]

Originally Posted by BANFAN
We don't have trade surplus to buy dollars. Our dollar reserves have increased due to remitance. So we have dollars in reserve, now we can buy other potential currencies or bonds or commodity. It's not a bad idea to buy gold. Even if US $ falls and other currency becomes dominant, Gold value remains. India, china and many others are buying golds currently.

Two days back there was a news on CNN that Japan is worried that china is buying large amount of yen and building reserves. This could be to raise the value of yen and reduce the demand of Jap products in int markets making it costly. Thus boost chineese export.

You can do these things when you have enough safe reserves. Gold is a safe reserve by all definition. I think BB is doing the right thing. FA bhai. BB didn;t have enough money when gold was $700. It is only now that we have reached to 10 billion reserves. They need to keep 2-3 billion cash for opening L/Cs against imports. So, we hardly have 6/7 billion to buy gold. Hope we don;t have to sell it again soon.

BB spent only 400m (As per Ntv Bangla) in US to buy 10 tons of gold at $1270 approx.
Two years ago, BB could have spent only 250m approx in US at $700.00
Two years ago, BB reserve was 6b approx in US and enough to buy this amount of gold and more.

It was not a problem with money, BB simply lacked expertise and foresightedness in decision making.

[BANFAN]

Originally Posted by FagunerAgun
BB spent only 400m (As per Ntv Bangla) in US to buy 10 tons of gold at $1270 approx.
Two years ago, BB could have spent only 250m approx in US at $700.00
Two years ago, BB reserve was 6b approx in US and enough to buy this amount of gold and more.

It was not a problem with money, BB simply lacked expertise and foresightedness in decision making.

That would be too marginal and risky to buy gold at that time with 6b reserve. If for any reason, remitance would fall, govt would have to sell gold, that's not a good news for any economy. All stock and bond markets would collapse, just with the news of selling gold, as it happened with india in 90s, when india had to sell gold reserves for liquidity problem. The national economy must play safer than a business man. Currently if they have kept a good liquid reserve, they have kept a buffer for low dollar inflow for any reason. I think, they have done it right.

[samjad]

This is a good decision by BB. Though we have bought it at the top of the price range, but this reserve will be valued more than say US$. As we have seen in recent times, currency market is getting more and more volatile. Euro falling, pounds falling, $ rising, then falling again.

btw.. did you guys hear about our Mostafa Kamal calling for Taka Appriciation against doller ?

[Rabz]

Originally Posted by samjad
btw.. did you guys hear about our Mostafa Kamal calling for Taka Appriciation against doller ?

Coincidentally, I have just opened a new thread on that topic, given the enormity of the impact of appreciation of Taka would have in our economy.

[bujhee kom]

So where is this $10B cash located? Is it in the Bangladesh Bank locker/basement safe? Are we somehow or can we earn interest on it while it's just sitting there?

[Rabz]

By the way, this is the first time Bangladesh Bank has bought gold in their history !!

Before this purchase, our Gold reserve was 3.5 tonnes, which was given as a gift to us by the Kuwaiti Govt back in 72-73 when we became a member of IMF and it required us to buy at least 1 ton of Gold to deposit.

[FagunerAgun]

Originally Posted by Rabz
By the way, this is the first time Bangladesh Bank has bought gold in their history !!

Before this purchase, our Gold reserve was 3.5 tonnes, which was given as a gift to us by the Kuwaiti Govt back in 72-73 when we became a member of IMF and it required us to buy at least 1 ton of Gold to deposit.

Nice finding, Rabz.
Before, feeble BB did not have expertise and foresightedness in diversifying its foreign currencies by buying gold. BB needs to buy more.

[Rabz]

Just to put things in some perspective, here is the world's top 15 Gold lovers:

15. Venezuela
Value of Reserves: $15.904 billion
Holdings Total: 397.6 tons

14. Portugal
Value of Reserves: $16.86 billion
Holdings Total: 421.51 tons

13. Taiwan
Value of Reserves: $18.67 billion
Holdings Total: 466.81 tons

12. European Central Bank (ECB)
Value of Reserves: $22.1 billion
Holdings Total: 522.54 tons

11. India
Value of Reserves: $24.58 billion
Holdings Total: 614.58 tons

10. Netherlands
Value of Reserves: $26.9 billion
Holdings Total: 674.98 tons

9. Russia
Value of Reserves: $28.26 billion
Holdings Total: 706.38 tons

8. Japan
Value of Reserves: $33.73 billion
Holdings Total: 843.25 tons

7. Switzerland
Value of Reserves: $45.84 billion
Holdings Total: 1,146 tons

6. China
Value of Reserves: $46.46 billion
Holdings Total: 1,161.6 tons

5. France
Value of Reserves: $107.35 billion
Holdings Total: 2,683.81 tons

4. Italy
Value of Reserves: $108.07 billion
Holdings Total: 2,701.9 tons

3. International Monetary Fund (IMF)
Value of Reserves: $132.4 billion
Holdings Total: 3311.84 tons

2. Germany
Value of Reserves: $150.17 billion
Holdings Total: 3754.29 tons

1. United States
Value of Reserves: $358.63 billion
Holdings Total: 8,965.65 tons

[BANFAN]

Rabz Bhai, Chinese reserves are in trillions, that i'm sure.

[Neel Here]

gold reserves are not. he has mentioned only gold reserves here.

[FagunerAgun]

On top of this amount of gold, China has a bigger reserve in US Treasury Bills.

[Rabz]

@Banfan: Chinese forex reserve is some staggering US$ 2.4 Trillion, if I'm not mistaken.

I was talking about the Gold reserve.