Currency Tool Employed Again

Peso and yen are rescued by a friend, Currency tool matters in the end.

Yuan has become stronger in three years amid tariff debate[1]. What is interesting is that there is conspicuous absence of Chinese central bank intervention to depreciate Yuan deliberately. It often happened in the past. Undervalued Yuan has always been an issue raised by the USA in bilateral talks. Since president Trump's last visit to China, we have not seen yet any Chinese intervention to devalue the Yuan. Appreciation of Yuan is at the heart of reshaping the global trading system.

Economist Stephen Miran, who is one of Fed's governors, argues in his policy paper titled "A User's Guide To Restructuring The Global Trading System" ( published by Hudson Bay Capital in November 2024) offers some tools to reshape global trading order[2]. One of the tools is tariff. Tariff will help addressing the budget deficit America suffers and make depreciation of Yuan untenable. Miran argues tariff will not drive up the prices if the tariffed /exporting country depreciates its currency to the full magnitude of the tariff. Tariff is not inflationary for America in this case. Usually individuals, other countries buy foreign assets with their foreign currency holdings. US treasury assets are one of them. China has a closed capital market and Chinese govt restricts investment abroad. So holders of foreign currency in China are forced to invest in less productive and risky assets like real estate that accumulated huge bad debt. Miran argues continuing currency devaluation under capital controls will not sustain amid high tariffs. So there will be great capital flight from China. And it will force the Chinese central bank to raise interest rate , leading to appreciation of Chinese currency. The plus side of tariff war is that the US govt will get revenue without incurring the inflation. However, the US may lose revenue if the partner country does not depreciate the currency and an ensuing inflation may be expected.

So far we have seen that the US Supreme Court made the US tariff useless and ordered to refund $100 billion tariff revenue. However, reciprocal tariff is replaced by forced labor tariff under trade act that allowed the US president to do so. Tariff reality still prevails. Yuan depreciated immediately following the months tariff came into affect. But it started to appreciate since then. Meanwhile, US dollar weakened till the US-Iran war broke out.

Another tool Miran advocates is the currency tool. It has two approaches: the multilateral approach and the unilateral approach. In the multilateral approach, the US sits with major trading partners and convince them to appreciate/strengthen their currencies and to depreciate/weaken the USD. This starts to happen when they start to sell USD from their forex reserve. The US starts to buy those dollars and issues new treasury security with duration of 100 years. In addition, the US sells those bonds to friendly countries who need security assistance in troubled waters and territories. By the way, the century bonds will replace the short and medium term bonds,easing the burden of the Fed to make huge interest payments and improving the budget deficits. Here the US projects the global security assistance as public good. And buying the century bond ,you are actually paying for that public good. In addition, holders of the century bond will enjoy favorable tariffs in the US market while the hostile partner will face a different kind of tariff. This multilateral currency approach has a precedent. In 1985, the US,France,UK,Germany and Japan met at the Plaza hotel and agreed to devalue the USD.

The unilateral approach reveals the leverages the US has to reshape the global trading system.It emerges when multilateral approach fails(many countries do not give consent to devalue dollar). One of the leverages is the International Emergency Economic Powers Act 1977 that allows the US president to halt and limit transfers of credit, payments or securities internationally. The US could hold part of the interest payments on treasury security in a bid to make USD unattractive for using it as reserve currency. This will lead countries to lower the size of their USD holdings, creating a depreciation pressure on USD.

Another leverage is the reserve accumulation,which means the US will buy other currencies in a bid to increase the demand of other currencies provided that the Fed prints and supplies the much needed USD.

Like tariff, currency tool has already been employed.In October 2025, we saw the USA announced a currency swap line worth $20 billion to rescue the Argentine peso ,halting depletion of forex reserve of the Argentine central bank. The US treasury secretary urged US banks and investment funds to invest more in Argentina. This is the first time,[reserve accumulation] is employed in tariff debate. This time it is used to rescue an ally Argentina to curb influence of China,which has also given a $18 billion currency swap line with the Argentina. Earlier, Argentina had chosen refurbished F-16 over JF-17 and J-10C offered by China for its Air Force. Here security is being projected as public good and currency is used to aid ally through security umbrella[3].

A week ago US Federal Reserve intervened again to rescue Japanese Yen. Yen witnessed huge depreciation pressure, but Fed's purchase of $8 billion of Japanese Yen helped the Japanese currency to gain some value. Earlier US intervention took place in 2011 after earthquake and tsunami in Japan[4].

Now think there comes a moment when this same reserve accumulation of the currency tool is being used to punish behavior of a rival. In fact, Federal Reserve governor Stephen Miran depicted such scenario in his paper where the US govt requests the Fed to print $1 trillion in a bid to purchase Yuan so that it appreciates .

However, recent appreciation of Yuan does not reflect that reality. It is merely a consequence of internal dynamics that the Chinese regulatory authority allowed to happen.

So far we witnessed that tariff and currency tools of the trade debate is applied. In terms of revenue, tariff may fail to bring some change but it shaped several Free Trade Agreements. At the same time, use of currency tool stalled free falling of several currencies and consolidated few security agreements. It is true that tariff debate gave rise to trade related uncertainties and hiked inflation in some parts. And in future,reserve accumulation may be employed by big trading partners for harmful purposes. We have to be cautious of intentional use of major currencies to influence other currencies through currency tool.

References:

[1] "Yuan Hits Strongest Levels In Years As Tensions Grow", The Star,August 06,2026, https://www.thestar.com.my/business/business-news/2026/08/06/yuan-hits-strongest-level-in-years-as-tensions-grow

[2]"Reshaping Global Trading System: What Lies Ahead",https://hoquestake.blogspot.com,April 04,2025,https://hoquestake.blogspot.com/2025/04/reshaping-global-trading-system-what.html?m=1

[3]"Tariff Debate Continues ",https://hoquestake.blogspot.com,November 03,2025,https://hoquestake.blogspot.com/2025/11/tariff-debate-continues.html?m=1

[4]"US Treasury Intervenes To Support Yen After Japan Steps In,FT Reports",Fabiola Arámburo and David Lawder ,August 01,2026. https://www.reuters.com/world/asia-pacific/us-treasury-undertakes-intervention-yen-market-ft-reports-2026-08-01/

La Semaine Dernière A Mes Yeux

(08 août --- 14 août)

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Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
08	Pain,Pomme de terre,Œuf	Riz,Ruhi, Soupe aux lentilles,Tige de taro et graine de jaque	---	Goyave,Puri
09	Pain,Œuf	Riz, Ruhi,Feuilles de courge amère avec petit poisson,Ruhi,Citrouilles	«Tandoor bread»,Citrouilles	---
10	Pain,Pois blanc,Œuf	Riz,Batasio tengra,Feuilles de taro,Purée de banane verte,Soupe aux lentilles	Riz gonflé, Pois chiches	Popcorn,Puri

A Country Built On Fault Lines

A country built on fault line Faces difficulty to shine.

In Bangladesh, we often see upending events cause deep division in the society ,leading on some occasions to polarization. Sometimes unsettled issues on historical events or violence involved in the events are behind such division. Failures to resolve differences through talk and justice create these fault lines. Some are major, some are minor. They are present almost in every sphere of life. Ordinary citizens, society and economy are paying a price for that.

Major years like 1971,1975,1990 and 2024 created some big fault lines. Apart from that one party rule BAKSAL, anti-Maoist campaign, some cultural movements, anti-shrine movement, persecution of minorities, indigenous movement, wage hike movement in industrial pockets and other movements also gave birth to several fault lines.

Driving a wedge between two opposing groups leads often to point of no return and brings destruction and loss to a country. Others exploit the crack of division and made it unbridgeable.

Yuri Bezmenov was a soviet journalist and diplomat. He defected to the West in 1970 and disclosed the psychological warfare model,which he had learned during his stint into his country's intelligence agency, used by the Soviets during the cold war to instill a new ideology into a society uprooting the prevailing ones. He publicly spilled the beans to Edward Griffin, an American journalist in the US,in 1984(see Yuri Bezmenov. Link: https://en.m.wikipedia.org/wiki/Yuri_Bezmenov and the interview , link: https://www.youtube.com/watch?v=s2b-I0Yqisc ). YouTube video is still available. I do not subscribe all his explanations and views about the 1971 and 1975. The timing of his defection and that of his interview depicts a different time. Lots of things were happening at home and abroad back then.The interview in particular is used to tell a particular narrative, to convince a particular audience. By the time the interview was aired, his subversion model had already been known to the world. Moreover, I find it a bit oversimplified and exaggerated. It is not that easy to fool a whole country. But there are some facts in that interview and you just cannot throw away the subversion model he exposed. So what is this subversion model he was talking about?

It comprises of 4 stages(for more read "4 Stages of Ideological Subversion According To Yuri Bezmenov", Nitigya Pant,February 24,2024. Link: https://medium.com/@nitigyaraj/4-stages-of-ideological-subversion-according-to-yuri-bezmenov-psychological-warfare-in-action-4ea01e2268c7 , and "Bezmenov's Steps(Ideological Subversion)", Porlando,July 14,2020. www.unintendedconsequences.es. Link: https://unintendedconsequenc.es/bezmenovs-steps/ ): Demoralization, Destabilization, Crisis and Normalization.

Demoralization takes 15-20 years to complete and in this phase society's core values,beliefs ,traditions and identity are questioned in a bid to disorient the population. Methods employed include politicization and monetization of creed,monopolization of media,controlling flow of information,discrediting others, educate generation to accept things without challenging, glorifying the ideology comparing it with others,antagonism among political parties,less spontaneous response from individuals to address social issues etc.

Destabilization takes another 2-5 years to complete and in this phase subvert ideology is projected to be an alternative. Methods employed include diminishing bargaining process in the economy, unreasonable power struggle,populism in politics,mobs reigning laws and society,growing isolation in foreign relations. Solution is "grass is greener on the other side" or other ideology is better.

Crisis phase lasts 6 months. In this phase people lost their trust on existing institutions and discard them. They are ready to embrace radical change,including welcoming ideology they were taught to despise.

Normalization describes the phase when subverted ideology becomes the ideology of the ruling regime. Military takeover is also a feature of normalization.

In general, the whole subversion process takes 20 to 23 years to complete. But there is no specific timeframe. But I find it a bit hilarious because it is almost part of a political thriller's manuscript and it considers a whole nation as cattle stock. There are many competing interest groups within a nation and it is not easy to fool them.

Now coming back to Bezmenov's subversion technique. If we consider it in the context of Bangladesh, then we can see two major ideological shifts took place in Bangladesh: one in 1975 and another in 2009. Ideology dominating post-75 finally gave in in 2009. The demoralization phase lasted till 2006. Destabilization and crisis phase lasted till 2008. And in 2009 the so called normalization came.Then another demoralization phase started. Another ideological shift took place in 2024.(for more read "Bezmenov's Leak Still Relevant: From Awami Policing To Moral Policing", Rezaul Hoque,https://hoquestake.blogspot.com,September 11,2024, https://hoquestake.blogspot.com/2024/09/bezmenovs-leak-still-relevant-from.html?m=1).

Two years have passed since the July uprising. Justice has yet to be delivered to the victims of that uprising. And victims include victims of both the feuding parties. Chaotic atmosphere still prevails. Any kind of narrative building approach to dominate others only widens the crack. Accommodating all the views including the vanquished ones,like in a democracy, can lead to reconciliation. Resolving differences and bridging the gaps are keys to prosperity and stability.

Stop Policy Duality

Practising policy duality Does not create same reality.

Govt backed dual system may be present in many areas. But exchange system is the area where it is present conspicuously and does much harm than benefit. Last week the central bank verbally notified all the banks not to trade US dollar above Tk 123.82 after the greenback witnessed increase in demand (for more read"BB imposes informal cap on dollar rates amid rising pressure",ASM Saad,The Business Standard, July 29,2026,https://www.tbsnews.net/economy/banking/bb-imposes-informal-cap-dollar-rates-amid-rising-pressure-1500561). Sudden rise in import bills caused the demand for USD to soar. In the foreign currency market, the USD is being traded at more than Tk 124 on some occasions. Govt is still following the crawling peg system, allowing the exchange rate varies between lower limit and higher limit with the difference with the market rate no more than a Taka. Yet setting another exchange rate is not unprecedented.

During the Awami League govt,we saw multiple exchange systems. Importers paid for dollars one exchange rate while exporters paid other exchange rate and remittance earners faced another exchange rate plus the incentive.The incentive was 5% initially and later reduced to 2.5%. Exchange system for the remittance was the highest offered by the govt including the incentive. Mr Ahsan H Mansur,the central bank governor during the interim govt,in an interview revealed that govt annually spent Tk 7000 crore to support the remittance incentive.

Having too many systems [has] downsides. Those who have access to subsidized official rate of USD could easily sell part part of the USD holdings in the unofficial market where the rate was high and made windfall gains. Credit was cheap back then as the central bank was pursuing a flawed 9% lending rate and 6% deposit rate. Money laundering soared. Part of the laundered money brought back under the cover of remittance,reaping benefits like incentive. So people with easy access to USD laundered it abroad and brought them home later to take the incentive money plus the extra money the exchange system offered for remittance. Police even arrested a chairman who turned out to be highest remittance earner in a given year and thereby highest recipient of the incentive. Even news reports showed parents of a student studying abroad stashed USD under floor. USD hoarding became a booming business back then.

Venezuela is perhaps the perfect example that shows the consequences multiple exchange system brings. Back in 2016 and 2017, the country introduced multiple exchange systems for foreign currency market. Politically connected rich people took full advantage of it. They availed the cheap subsidized dollar from the govt. Some importers also got hold of this cheap subsidized USD. Then they resold the USD in the black market where the exchange rate was staggeringly high. Importers found the arbitrage opportunity increasingly profitable. So they used a big part of the USD meant for importing essential goods to trade in the black market. Venezuela, which imports almost everything from abroad, witnessed shortage of essential goods as less goods imported. Bolivar was losing its value against other currencies. At one point, 1 Euro fetched 35000 Bolivars. This hyperinflation impoverished ordinary Venezuelans but enriched the elite of the society(for more read "Venezuela’s hyperinflation fuels misery for poor but enriches elite through currency exchanges",Jay Weaver and Antonio Maria Delgado,September 13,2018,Miami Herald, https://www.miamiherald.com/news/local/article217868465.html#storylink=cpy https://www.miamiherald.com/news/local/article217868465.html).

This is why multiple exchange and pegging currency at fixed value ignoring the market value is bad. And ultimately people pay the price for belated adjustment and correction. Foreign currency market often sees upward or downward pressure on major currencies, resulting from sudden import surge or record remittance inflow ahead of major festivals. In a bid to control currency exchange rate , any unconventional intervention like capping the rate through verbal notice is not desirable. By doing this kind of act govt is introducing some sort of dual policy into the system. It will ultimately benefit few but hurt a great lot of people. Apart from currency exchange, we see central bank plays a dual role in the credit market too. Central bank's policy rate was 10% and now it becomes 9.5%. Central bank in a latest move offered Tk 2000 crore at 7% interest rate to the people involved in leather industry. Earlier it had made subsidized interest rate offer to other sectors as part of the stimulus package, bizarrely managed by the central bank. Remember it is the central bank,not commercial banks, that offered this subsidized interest rate much below the inflation rate, which is still hovering around 9%. By offering such move, the central bank is undermining its policy rate and its inflation containing effort. And it is doubtful whether central bank can achieve the stated objectives from subsidized interest rate when high interest bearing assets like treasury bills may easily draw this money. While ordinary citizens and SMEs are paying higher rate of interest , policy duality creates opportunity for some people to make money through arbitrage.

Policy duality should be avoided. As it is seen,less accountable society has policy duality that ultimately hurts the ordinary citizens. If we are a democracy , then any kind of duality in policy should be discarded.

La Semaine Dernière A Mes Yeux

(01 août --- 07 août)

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Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
01	Pain,Pomme de terre,Œuf	Pilaf,Poulet,Papaye-Banane verte	Pilaf,Poulet,Papaye-Banane verte	Goyave
02	Pain,Poulet, Œuf	Riz, Épinard malabar,Papaye-Banane verge,Soupe aux lentilles	«Tandoor bread»,Poulet	Jaque
03	Pain,Pomme de terre,Œuf	Riz,Petit poisson,Yard long beans,Soupe aux lentilles	Pois chiches,Riz gonflé	Jaque
04	Pain,Pomme de terre, Œuf	Riz,Petit poisson,Courge amère, Yard long beans Soupe aux lentilles	«Fried rice»,«Fried chicken», «Chilli chicken»,Légumes	Jaque,Gâteau, Pois chiches,Riz gonflé
05	Pain,Pomme de terre,Œuf	Riz,Tige de taro avec graine de jaque,Gombo,Soupe aux lentilles	Soupe aux lentilles,Riz gonflé	Goyave, «Sweets»
06	Pain,Yard long beans, Œuf	Riz, Épinard d'eau,Tige de taro avec graine de jaque,Soupe aux lentilles,Aïr poisson	Pois chiches,Riz gonflé	Goyave
07	Pain,Œuf	---	---	Jaque

Foreign Currency Bond: A Cart Before The Horse

Foreign currency bond will set a new course, Without true reform,this is just a cart before the horse.

News broke out that Bangladesh govt formed committee to issue bonds in foreign currencies across different international markets. Funds raised through such foreign currency bonds will be used to finance development projects(see "High Level Panel Formed To Assess Feasibility of Issuing Panda,other Foreign Currency Sovereign Bonds", Abul Kashem & Rafiqul Islam,Daily Business Standard, July 28,2026,https://www.tbsnews.net/economy/high-level-panel-formed-assess-feasibility-issuing-panda-other-foreign-currency-sovereign). This is the first time govt is exploring foreign capital markets to finance domestic initiatives.The news also says govt is mulling regulatory changes to allow purchase of such bonds by Bangladeshi nationals who under current regulatory set up cannot purchase such bonds.

Question is whether there is a drastic change in governance and macroeconomic indicators that [calls] for contemplating launch of such foreign currency bonds. The very same day this news came out another report says S&P Global Ratings revised Bangladesh's outlook on long-term sovereign credit rating from stable to negative. The agency attributed reasons for the revision to weak banking sector,poor revenue collection, external factors and high likelihood of delayed recovery (see "S&P Revises Bangladesh Outlook To Negative On Banking Sector,Fiscal Risks",The Business Standard, July 18,2026,https://www.tbsnews.net/economy/sp-revises-bangladesh-outlook-negative-banking-sector-fiscal-risks-1499791). The agency observed that non performing loan in the banking sector reached about 40% of total loans, govt revenue collection accounts for 8%-9% of GDP and interest payments represent 30% of govt revenue. That means revenue collection is still inadequate and more than a quarter of that revenue goes for paying up the the interest of govt debt.

In this backdrop, govt is pondering to draw money from foreign debt market. Govt is not increasing the pace of domestic revenue collection to meet the existing debt servicing obligation but embarking on issuing bonds that will require more revenue money to pay the interest/ coupon.

Proper use of the raised fund is another issue otherwise whole initiative will be jeopardized. Indonesia is an example. Foreign investors account for 14% of Indonesian govt debt and 40% [of] traded stocks(see "Patriot Bonds,An Indonesian Shakedown?", Philip Bowring,Asia Sentinel,October 06,2025,https://www.asiasentinel.com/p/patriot-bonds-indonesia-shakedown). Money raised through foreign bonds often goes to spending on public projects with inefficient outcomes and leakages. Free school meal program is marred with corruption as vendors ,contractors embezzled funds by submitting swollen bills and delivering poor quality food items that caused illness to the students. This kind of politically motivated projects plus subsidy already pushed up budget deficits beyond legal threshold of 3% of GDP,worrying foreign investors about sustainability of govt programs. They pulled out $3.9 billion from Indonesian market this year. Plus $46.1 billion of govt debt comes to fruition this year. This puts tremendous pressure on Indonesian Rupiah,which already witnessed [8%] depreciation against USD("Why Indonesia's Economy Is Under Pressure", Nik Martin, Deutsche Welle,July 15,2026,https://www.dw.com/en/indonesia-economy-prabowo-emerging-market-status/a-77847180).

Point is unaccountable public spending programs coupled with lack of regulatory checks may hurt the very spirit of the funding objective. In addition, when foreign currency bond will mature, it will put pressure on local currency Taka if macroeconomic situation is not in favor. Any rapid depreciation of Taka may result in worsening the inflation.

Foreign investors seek detail and clear information on bond issuer economy. They will certainly not bank on info like Bangladesh never fails to pay back its debt and its low debt-to-GDP ratio(38.9% according to CEIC data). They will certainly inquire about why the country fails to provide gas to the new factories. They will seek information about banking sector reform,distress asset management.Vital reforms should be carried out to draw attention of foreign investors to foreign currency bonds.

Indonesia's Patriot Bond allows undisclosed wealth to enter the economy. The govt even passed a law that says investors are not obliged to provide any info on investment on the bond that can be used to prosecute them later. Such provision is a boon for money laundering activity and poses risks for the financial sector(see "The Hidden Amnesty In Indonesia's Cut-Rate Patriot Bond",Ronny P Sasmita,Asia Times,June 24,2026,https://asiatimes.com/2026/06/the-hidden-amnesty-in-indonesias-cut-rate-patriot-bonds/). Bangladesh should avoid such provision in issuing foreign bonds. And greater transparency in issuing will thwart money laundering activity.

Without serious commitment to implement reform in financial sector, revenue collection and governance, the initiative of issuing foreign currency bond seems like cart-before-the-horse case. In this era of free-flow-of-information govt backed assurance will not convince the foreign investors to rest their trust on Bangladeshi foreign currency bonds. Deeper reform,fiscal prudence and accountable public spending may set the context for any such future initiative.

La Semaine Dernière A Mes Yeux

(25 juillet --- 31 juillet)

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Date	Petit déjeuner	Déjeuner	Dîner	Snacks,Sucreries,Boissons et Fritures
25	Pain,Yardlong beans,Œuf	Riz,Purée de sésame, Purée de feuilles de Moringa,Sec ruban avec haricot rouge et graine de jaque	Riz,Sec ruban avec haricot rouge et graine de jaque	Riz gonflé,Pois chiches ,Tchanatchur
26	Pain,Pomme de terre	Riz, Latya poisson, Sec ruban avec haricot rouge,Feuilles de taro	---	Riz gonflé, Pois chiches,Tchanatchur,«Pianju»,«Tchop»
27	Pain,Pomme de terre,Œuf	Riz,Poulet,Feuilles de taro,Courge amère,Sec ruban avec haricot rouge	---	--
28	Pain,Yardlong beans,Œuf	Riz,Aïr poisson ,Sec ruban avec haricot rouge et graine de jaque,Courge amère	Soupe aux champignons,Pain	Mangue,Goyave,Malta,Sweets
29	Pain,Yardlong beans,Œuf	Riz,Poulet,Courge amère,Soupe aux lentilles	---	Riz gonflé,Goyave
30	Pain,Poulet,Œuf	Riz,Poulet,Courge amère,Soupe aux lentilles	---	Yaourt,Riz gonflé
31	Pain,Poulet,Œuf	Riz,Aïr poisson,Feuilles de courge amère,Soupe aux lentilles,Papaye-Banane verte	«Tandoor bread»,Papaye-Banane verte	Lait