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The abrupt removal of Bangladesh Bank governor Ahsan H. Mansur and his replacement with Mostaqur Rahman has unsettled markets at a moment when the South Asian nation’s economic recovery remains fragile. 

Mansur, appointed after the political turbulence that followed the fall of Sheikh Hasina, inherited a stressed economy. Foreign exchange reserves had been depleted, inflation was elevated, and the taka (currency) had been propped up through administrative management that few believed was sustainable. 

Confidence, not just liquidity, was in short supply.

Mansur’s approach was orthodox and, crucially, predictable. He maintained relatively high interest rates to contain excess money supply and signalled that the currency would be allowed to move within a more transparent, market-reflective framework rather than being artificially defended at unrealistic levels. 

That signal mattered. Bangladesh’s annual remittance inflows rose sharply, climbing from an average of roughly $24 billion to about $33 billion within a year and a half. Foreign exchange reserves rebounded from approximately $18 billion to around $30 billion over the same period. 

The turnaround was psychological. By demonstrating that the central bank would not burn reserves to defend an indefensible exchange rate, Mansur restored a measure of credibility.

In emerging markets, credibility functions like capital. When expatriate workers believe the exchange rate will stabilise, they send money home promptly rather than holding dollars abroad in expectation of a sharper depreciation. 

When correspondent banks and global lenders believe that monetary policy is guided by economic principles rather than political expediency, they maintain credit........

© The Wire