From a Pandemic Era Peak to a Cautious Recovery

Bangladesh’s foreign-exchange reserves tell a larger story than the rise and fall of a single economic indicator. They reveal how the country absorbed a pandemic, a global commodity shock, an exchange-rate crisis, persistent pressure on the balance of payments and, ultimately, the beginnings of an external-sector recovery.

According to the headline figures, Bangladesh’s reserves reached a historic peak of approximately $48 billion in August 2021. They subsequently declined to $39 billion in August 2022, $29 billion in August 2023 and $26 billion in August 2024. The direction changed thereafter. Reserves reportedly recovered to around $31 billion in August 2025 and $36.39 billion by September 2026.

At first sight, this appears to be a simple cycle of accumulation, depletion and restoration. From an independent central-banking perspective, however, the underlying reality is more complex. The $48 billion recorded in 2021 was not entirely the product of permanent structural strength. The decline that followed was not caused solely by the Russia–Ukraine war. Likewise, the subsequent rebound cannot yet be regarded as proof that Bangladesh’s external-sector vulnerabilities have been fully resolved.

The correct conclusion lies between celebration and pessimism. Bangladesh has moved beyond the phase of uncontrolled reserve depletion and entered a period of meaningful reserve rebuilding. That is a significant achievement. It is not yet the end of the journey.

The Extraordinary Peak of 2021

The reserve accumulation of 2021 occurred under highly unusual global and domestic conditions. During the pandemic, imports weakened as economic activity, international travel and private consumption slowed. At the same time, remittances through formal channels increased sharply. Development-partner financing and other external inflows also contributed to the country’s foreign-exchange position.

In August 2021, Bangladesh additionally received approximately $1.44 billion under the International Monetary Fund’s general allocation of Special Drawing Rights. This helped lift the headline reserve figure beyond $48 billion.

The record was genuine, but its composition matters. A portion of that reserve strength arose from compressed imports, exceptional remittance behaviour, international financial support and pandemic-related circumstances that could not be expected to continue indefinitely.

The 2021 figure should therefore be understood as an exceptional high point rather than the permanent external capacity of the economy. It provided a valuable buffer, but it also created a misleading sense of security. A high reserve balance can conceal structural weaknesses when it is supported by temporary conditions rather than diversified and recurring foreign-currency earnings.

The Great Reversal

The external environment changed dramatically in 2022. The Russia–Ukraine war disrupted global energy, food, fertiliser and commodity markets. International prices rose sharply. Freight costs remained elevated, the United States dollar strengthened and monetary tightening across advanced economies increased the cost of global finance.

For Bangladesh, an economy heavily dependent on imported fuel, food, industrial raw materials and capital machinery, the consequences were immediate. The same physical quantity of imports suddenly required substantially more foreign currency. The current-account deficit widened and demand for dollars intensified.

Yet the war alone does not fully explain the scale of Bangladesh’s reserve loss. Domestic policy choices also played an important role.

For an extended period, the exchange rate was prevented from adjusting fully to market conditions. Bangladesh Bank supplied dollars from its reserves to contain depreciation of the taka and meet essential import obligations. This policy moderated exchange-rate volatility in the short term, but it transferred the pressure directly to the central bank’s balance sheet.

When an exchange rate is maintained below its market-clearing level, demand for foreign currency remains artificially high while incentives to supply dollars through official channels weaken. A gap then emerges between official, informal and other market rates. Exporters may delay the repatriation of proceeds. Remitters may prefer informal channels. Importers may accelerate demand in anticipation of further depreciation.

The central bank can temporarily bridge this imbalance by selling reserves, but it cannot do so indefinitely. Reserve intervention can provide time for adjustment. It cannot replace adjustment itself.

More Than a Global Shock

The decline from approximately $48 billion in August 2021 to $26 billion in August 2024 represented a contraction of nearly 45.8 percent. Such a substantial decline cannot be attributed to a single external event.

Bangladesh’s underlying vulnerabilities included a narrow export base dominated by ready-made garments, limited foreign direct investment, significant dependence on imported energy and industrial inputs, weak export-proceeds discipline, possible trade misinvoicing, capital flight risks and growing external debt-service obligations.

The country also faced accumulated import liabilities and persistent pressure from public-sector energy payments. As banks struggled to obtain sufficient foreign currency, import letters of credit became more difficult to open and settle. Businesses dependent on imported raw materials faced uncertainty, production costs increased and confidence in the foreign-exchange market weakened.

The reserve crisis was therefore the product of three interacting forces. The first was a severe global commodity and financial shock. The second was an exchange-rate framework that adjusted too slowly. The third was a set of longstanding structural weaknesses in foreign-currency generation and external-account governance.

An independent assessment must acknowledge all three. Blaming only external events understates domestic policy responsibility. Blaming only domestic policy ignores the extraordinary severity of the global shock.

Stability Achieved Through Compression

By August 2024, the headline reserve figure had fallen to around $26 billion. The slowing of the decline was important, but its economic cost must also be recognised.

Authorities tightened the opening of import letters of credit, scrutinised foreign-exchange transactions and restricted many non-essential imports. These measures helped reduce the immediate demand for dollars. They also helped conserve reserves.

Import compression, however, is not the same as external-sector transformation.

Restricting luxury and clearly non-essential imports during a crisis can be justified. Restricting productive imports for a prolonged period is far more damaging. Bangladesh’s industries depend heavily on imported machinery, intermediate goods, chemicals, fuel and raw materials. If these imports are excessively constrained, investment slows, production capacity weakens and future export earnings may be compromised.

A country cannot build sustainable reserves by permanently suppressing the imports required for growth. Durable reserve accumulation must ultimately come from stronger exports, dependable remittances, foreign direct investment, competitive productivity and prudent external borrowing.

The Recovery of 2025 and 2026

The rise from approximately $26 billion in August 2024 to $36.39 billion by September 2026 represents an increase of about $10.39 billion, or nearly 40 percent. This is a substantial recovery and should not be understated.

Several forces appear to have contributed. Remittance inflows through the formal banking system strengthened considerably. The gap between formal and informal exchange rates narrowed. Exchange-rate management became more flexible. Export receipts improved. External financing from development partners provided additional support. Import demand remained comparatively disciplined, while the central bank gained greater opportunity to purchase rather than continuously sell foreign currency.

These developments indicate that confidence in the formal foreign-exchange market has improved. They also suggest that earlier policy corrections have begun to yield results.

Nevertheless, one factual qualification is necessary. Remittance inflows exceeded $3 billion per month for six consecutive months from December 2025 through May 2026. The sequence did not continue uninterrupted thereafter. Bangladesh received approximately $2.82 billion in June and $2.86 billion in July 2026.

The description of September 2026 as a period of continuing monthly remittances above $3 billion would therefore be inaccurate. The six-month performance remains impressive, but it should be described as a completed sequence rather than an uninterrupted current trend.

The Crucial Question of Reserve Measurement

No serious assessment of Bangladesh’s reserves can ignore the difference between the conventional gross figure and the amount calculated under the International Monetary Fund’s Balance of Payments and International Investment Position Manual, Sixth Edition, commonly known as BPM6.

Historically, Bangladesh’s headline reserve figure included certain foreign assets that were not immediately available for intervention or external payments. Under BPM6, some of these components are excluded because reserve assets must be readily available to and controlled by the monetary authority.

This distinction is not merely technical. It determines how much foreign currency the country can actually deploy during a balance-of-payments emergency.

For example, when the conventional gross reserve stood at approximately $35.03 billion in February 2026, the corresponding BPM6 reserve was reported at around $30.27 billion. The difference was almost $4.8 billion.

Consequently, the September 2026 headline figure of $36.39 billion should not automatically be interpreted as fully usable reserve liquidity. The BPM6 figure, the net international reserve position and the amount remaining after short-term external obligations are more relevant measures of resilience.

Bangladesh should routinely publish four numbers together: the conventional gross reserve, the BPM6 reserve, the net usable reserve and the number of months of prospective imports that the usable reserve can finance. Transparent publication would strengthen public understanding, policy credibility and international confidence.

What the Numbers Truly Say

Between August 2021 and August 2024, reserves declined by approximately $22 billion, or 45.8 percent. Between August 2024 and September 2026, they recovered by approximately $10.39 billion, or nearly 40 percent. Despite this strong rebound, the September 2026 reserve remained approximately $11.61 billion, or 24.2 percent, below the 2021 peak.

There is no contradiction in these percentages. A 45.8 percent decline followed by a 40 percent increase does not restore the original amount because the recovery begins from a much smaller base.

More importantly, returning to the numerical peak of 2021 should not become the sole policy objective. The purchasing power and adequacy of reserves change with import prices, external liabilities and the size of the economy. $48 billion at one point in time is not economically identical to $48 billion several years later.

The relevant objective is not a politically attractive headline number. It is a reserve position sufficient to absorb external shocks, meet essential imports, service external debt and maintain orderly foreign-exchange markets without defending an unsustainable exchange rate.

The Proper Tests of Reserve Adequacy

A central bank should judge reserve strength through several interconnected tests.

The first is import coverage. How many months of prospective goods and services imports can the reserves finance? Three months may represent a basic warning threshold in conventional analysis, but a country such as Bangladesh, with high energy dependence, concentrated exports and exposure to climate and commodity shocks, should seek a stronger cushion.

The second is short-term external debt coverage. Reserves should be evaluated against public and private foreign-currency obligations falling due within the next twelve months.

The third is intervention capacity. A meaningful portion of the reserves must be liquid and immediately available to address disorderly market conditions.

The fourth is the source of accumulation. Reserves generated by exports, remittances, foreign direct investment and a healthier current account are more sustainable than reserves accumulated through new external borrowing, deferred import payments or temporary budget support.

The fifth is market behaviour. A central bank rebuilding reserves while functioning as a net purchaser of foreign currency is in a stronger position than one reporting reserve growth mainly because external loans have arrived while underlying market shortages continue.

The Macroeconomic Benefits and Their Limits

A stronger reserve position can stabilise expectations, reduce pressure on the taka and improve the banking system’s access to foreign currency. It can facilitate the import of fuel, food, medicine, industrial raw materials and capital equipment. It can also improve perceptions among international lenders, investors and rating agencies.

But reserve rebuilding creates its own policy complications.

When Bangladesh Bank purchases dollars, it releases taka into the domestic banking system. Unless this additional liquidity is appropriately sterilised, it can intensify inflationary pressure. The central bank must therefore coordinate foreign-exchange intervention with monetary operations, interest-rate policy and liquidity management.

There is also a risk of reopening imports too rapidly. Several years of restrictions may have created pent-up demand for industrial inputs, consumer products and deferred foreign payments. If this demand returns all at once, the newly accumulated reserves could again come under pressure.

The transition from restriction to normalisation must therefore be gradual, transparent and prioritised. Productive imports should receive greater space, while speculative, mispriced and non-essential foreign-exchange demand should remain subject to disciplined scrutiny.

The Strategic Agenda Ahead

Bangladesh Bank should preserve greater exchange-rate flexibility and avoid committing reserves to the defence of an administratively preferred rate. Intervention should be used to reduce disorderly volatility, not to prevent necessary market adjustment.

The authorities should strengthen the timely repatriation of export proceeds and improve verification of import prices. Trade-based money laundering cannot be controlled through foreign-exchange restrictions alone. It requires coordinated customs intelligence, tax information, banking supervision, beneficial-ownership transparency and international cooperation.

The country must also diversify its sources of foreign currency. Ready-made garments and worker remittances remain indispensable, but dependence on these two pillars creates concentration risk. Bangladesh needs higher-value manufacturing, information-technology services, pharmaceuticals, agro-processing, shipbuilding, light engineering and other tradable sectors capable of generating recurring external earnings.

Foreign direct investment deserves particular attention. Borrowed dollars increase reserves temporarily but create future repayment obligations. Equity-based foreign investment brings capital, technology, management expertise and market access without imposing the same fixed debt-service burden.

External borrowing must meanwhile be evaluated against the foreign-currency earning capacity of the projects financed. Debt-funded infrastructure that generates neither export income nor measurable productivity gains may create future pressure on the very reserves it initially appears to strengthen.

An Independent Verdict

Bangladesh’s reserve recovery is real, significant and economically valuable. The country has moved away from the most dangerous phase of persistent reserve depletion. The improvement reflects stronger formal remittances, greater exchange-rate realism, restrained foreign-currency demand and renewed external inflows.

Yet the recovery remains incomplete.

The headline reserve has not returned to its 2021 peak. The internationally comparable BPM6 reserve is lower than the conventional gross figure. External debt-service obligations are rising. The export base remains concentrated. Foreign direct investment remains inadequate. The economy continues to depend heavily on imported energy, food and industrial inputs.

It would therefore be equally mistaken to dismiss the recovery as meaningless or proclaim that the external-sector crisis has been permanently conquered.

The most accurate conclusion is that Bangladesh has progressed from reserve defence to reserve reconstruction. The next challenge is to convert that reconstruction into lasting external resilience.

A large reserve balance is a visible symbol of strength. Sustainable strength, however, comes from something deeper: diversified exports, trusted institutions, competitive productivity, lawful remittance channels, a credible exchange-rate regime, disciplined external borrowing and the continuous ability of the economy to earn more foreign currency than it is compelled to spend.

Bangladesh should not treat the present moment as an occasion for complacency. It should treat it as a rare opportunity to complete the reforms that the crisis made unavoidable.

The country’s ultimate success will not be measured by whether its reserves again cross $48 billion. It will be measured by whether the next global shock can be absorbed without destabilising the currency, restricting productive imports, weakening investment or compromising economic sovereignty.

That is the true meaning of reserve strength. And that must be the governing objective of Bangladesh’s next generation of central banking.

Disclaimer: This article presents the author’s independent analysis based on publicly available information believed to be reliable at the time of writing. Reserve figures may vary according to reporting date and methodology, including conventional gross, BPM6 and net usable measures. The article does not represent the official position of any institution and should not be treated as financial, investment or policy advice.