25 Jul 2023
Although millions of Bangladeshi migrants live in foreign countries to earn a living and send money to Bangladesh to offer financial support to their families back home, certain government policies impact the flow of inward remittances.
But for remittances to take effect from any government policy, they have to operate through legal channels. Because all illegal means of transferring remittances operate outside of a government’s purview.
There are several such policies that directly or indirectly affect the flow of inward remittances to any country. And if you look closely, you will realise that most developing countries are the recipients of remittances sent to them by their respective diaspora populations.
Currency pegging is one such policy that bears a direct impact on the flow of remittances.
According to a report by the Arab News, sourcing its data from Bangladesh’s Bureau of Manpower Employment and Training, over 13 million Bangladeshi migrants are living in different countries.
The same report continued to state that the government of Bangladesh is planning to send 1 million more people abroad to expand its migrant base and add to the quantum of inward remittances.
These Bangladeshi migrants have sent back $21.5 billion in inward remittances in 2022, according to a World Bank report.
As mentioned earlier, one of the policies that affect remittances is the currency pegging policy.
Do you know what is a currency pegging policy and how it impacts the flow of remittances to Bangladesh?
Well, read on to find answers to these important questions.
Currency pegging is a monetary policy through which a government maintains a fixed exchange rate for the currency of another country.
It leads to a stable exchange rate policy between the two countries and their respective currencies.
For example, if the government of Bangladesh pegs its currency to the US Dollar, it will fluctuate with the dollar whose chances are slim given that the US Dollar is the world’s most stable currency.
Therefore, Bangladeshi migrants, in such a scenario, will get a stable currency exchange rate in each money transfer to Bangladesh, should they choose to send money in US Dollars.
With or without currency pegging, it is also essential for you to understand How Currency Exchange Rates Are Calculated.
Let’s see the important components of currency pegging.
For the process of currency pegging, the following components are essential.
It is the legally accepted monetary instrument that is needed for exchange in one’s own country. It is also the primary currency around which is centred every business, trade and commerce, and sale and purchase within a specific country.
It is a legally accepted monetary instrument that is needed for exchange outside of one’s country. Foreign currency is needed for trade and commerce with another country.
It is where currency pegging comes in. The central government or a financial regulatory authority fixes the currency exchange rate against another currency of the country it wants to do business with. It supplements the business and offers a stable currency exchange rate which is not influenced by fluctuations triggered by international factors.
Let’s look at some of the limitations of currency pegging.
While currency pegging policy serves many purposes which are discussed below, it also has the following limitations.
Before knowing the advantages and disadvantages of currency pegging, it is important to know some other important considerations so that you know how it benefits your online money transfer to Bangladesh. These are:
Some of the advantages of currency pegging are listed below.
Business in the country increases and commerce boosts. Because a currency peg ends speculation, which paves the way for investors to come and make investments in the country.
A currency peg provides stability against currency fluctuations and it attracts long-term investments in the country that does currency pegging. It adds to the overall economic health of a country.
A currency peg offers stabilization in a country’s monetary policy and reduces volatility that is the result of fluctuations in the exchange rates of different currencies due to several global factors.
Since a currency peg offers a fixed exchange rate, it adds to the steady flow of inward remittances. But for that to happen, expatriates must work in and send money from countries to which their native country’s currency is pegged.
Some of the disadvantages of currency pegging are listed below.
Consider currency pegging as a favour from the other country. And in response to that favour, the other country will keep interfering in a country’s domestic affairs.
A country needs strong government support for currency pegging because it is a long and complicated process. Additionally, monetary authorities have to consistently monitor the entire process.
These are a couple of disadvantages of a currency peg as the positives of currency pegging outweigh the negatives.
If you send money to Bangladesh online with ACE Money Transfer, you can get live and market-competitive exchange rates for several currencies, because the country you are working in may not necessarily be currency pegged by Bangladesh’s government. Right? Furthermore, you will get speed, safety, a wide service network and much more for a low fee from one window.
Frequently Asked Questions (FAQs)
What is currency pegging?
Currency pegging is when one country ties its currency’s exchange rates against another country’s currency. Most developing countries peg their respective currencies against the US Dollar as it is the world’s most stable and strong currency.
What purpose does currency pegging serve?
A currency peg offers a steady, stable and fixed exchange rate which is not affected by the fluctuations that are triggered by many global factors like wars, natural calamities, and pandemics.
Does the currency peg benefit inward remittances to Bangladesh?
Yes. A currency peg does benefit the flow of inward remittances to Bangladesh provided money is sent from such a country whose currency Bangladesh has pegged its currency against.
Is currency pegging a good idea?
Yes, currency pegging is a good monetary policy. Because it ends speculation and volatility and encourages investors to invest in the business and also enables locals to import more goods and services from foreign countries.
Why should a country choose to peg its currency?
There are several reasons for pegging a currency but the prime ones include providing economic stability, fostering bilateral trade and commerce, and mitigating the effects of entering new economic markets.
Resources
(Bangladesh sets target to send 1 million workers abroad in 2022 | Arab News)
(Personal remittances, received (current US$) - Bangladesh | Data (worldbank.org)
