While growing up, we have seen our mothers save money by delaying gratification from household purchases. Do you know that all that effort is in vain as cash saved in our mother’s account in 2018 has lost its purchasing value by 50%* in the last five years? It would have been better for her to buy that new microwave for 10000 BDT in 2018 cause that microwave is now 20,000 BDT in 2023 or even more if it is imported.
Bangladesh Taka is at its most significant low in 2023, with the gold price at an all-time high of 93,429 BDT per Bhori and USD shooting up to 120 BDT in the open market. We all know money is subject to inflation and loses value over time, but BDT has lost its value significantly in the last five years for two main reasons: money printing and forex regulation.
1. Money printing :
Bad loans are a recurring headline in the Bangladeshi newspaper. From cartoonists to critics, everyone blames the bad actors, but no one dares to blame the system.
Link: Image from Prothom Alo
In recent times, reputable banks have faced a liquidity crisis due to bad loans and corporate governance. “Business politicians” have corrupted the banking system by joining or owning various commercial banks. As government cannot afford banks to go bust, they borrow money from the Bangladesh Bank to cover these bad loans.
In 2022, the Government borrowed Tk 65,605 crore from the Bangladesh Bank, with Tk 33,355 crore being used to repay loans to commercial banks. Bangladesh Bank provides loans to the Government against bonds, which is like creating money from thin air. An increase in the money supply without creating economic value results in currency devaluation or inflation.
In the last five years, the M2 money supply has increased by 90%, much higher than Bangladesh's economic growth.
2. Regulation on Foreign Exchange:
The Bangladeshi government has artificially inflated the value of the Bangladeshi Taka (BDT) against the US dollar for years, using a "dirty float" approach. This has led BDT to be artificially overvalued, causing a decline in remittances and forcing expatriates to use informal channels. The Government's limit for an individual to buy USD is another way of artificially keeping the demand for USD lower than normal. By limiting the free-market forces to determine BDT to USD, the policymakers have created a sudden spike in demand for USD, lowering the purchasing power of BDT globally.
From Jan 2022 to Jan 2023, USD increased from 86 BDT to 104 BDT (115 BDT in the open market)
Cash is making the lower middle-class poorer with time
Most wealthy people already know that cash is a terrible store of value and use this cash to buy assets that have long-term returns.
Asif Khan, an asset manager from Bangladesh, took a deep dive into finding the best asset returns within a 10 and 20-year period, guiding investment to stop wealth erosion.
According to his research, the equity market has outperformed all asset classes in 20 years, followed by Land, Apartments, and Bonds.
I believe that Land is still the safest store of wealth (but highly illiquid) in Bangladesh in the current situation because it has a hedge against the systemic risk of an inefficient banking system.
My view about equity will change if we have a low cost index fund and stronger securities law.
This advice only applies to people with the time, education, capital, and financial literacy to investing in such assets. Many Bangladesh individuals do not have the capital to own land, and many do not have the financial discipline to endure stock market volatility. And many, due to religious sentiment, stay away from interest-based deposits and rely on savings in cash. But they do not know that they are in a vicious cycle of bad monetary policy and that their savings will not help them gain freedom from laborious work.
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