Bangladeshi taka in a COVID-19 whirlwind

Navigating the Economic Storm: How COVID-19 Impacted Bangladesh's Exchange Rate

Samir D’Costa in Business & Economy December 2025 • 4 min read.

"A Deep Dive into Volatility and Lessons for Future Financial Shocks"

The COVID-19 pandemic, an unprecedented global crisis, sent shockwaves through economies worldwide. Bangladesh, like many nations, faced a unique set of economic challenges, particularly in managing the volatility of its exchange rate. Understanding how COVID-19 impacted Bangladesh's financial landscape offers valuable lessons for navigating future economic uncertainties.

Exchange rate volatility can have significant consequences for a country's economy, influencing trade, investment, and overall financial stability. Bangladesh's experience during the pandemic provides a compelling case study for policymakers, economists, and anyone interested in the intersection of global health crises and economic management.

This analysis delves into the specific impacts of COVID-19 on Bangladesh's exchange rate, examining the factors that contributed to its fluctuations and the strategies employed to mitigate potential damage. By understanding these dynamics, we can better prepare for and respond to future economic shocks.

Unpacking the GARCH Model: Understanding Volatility

Bangladeshi taka in a COVID-19 whirlwind

To accurately assess the impact of COVID-19, economists often turn to sophisticated statistical models. One such model, the GARCH (Generalized Autoregressive Conditional Heteroskedasticity) model, is particularly useful for examining volatility in financial markets. Essentially, the GARCH model helps to understand how past volatility influences current and future volatility.

Think of it like this: if a stock market experiences a period of significant ups and downs, the GARCH model helps predict whether that turbulence will continue or subside. In the context of Bangladesh's exchange rate, the GARCH model can reveal how COVID-19 case numbers and related events influenced the taka's stability against currencies like the US dollar, Japanese yen, and Swedish krona.

Examining COVID-19's Impact: The GARCH model analyzes the relationship between daily COVID-19 cases and the volatility of the Bangladeshi taka (BDT) against major currencies.
Key Findings: The research indicates that an increase in COVID-19 cases in Bangladesh led to a significant and positive impact on the volatility of exchange rates, particularly BDT/USD, BDT/JPY, and BDT/SEK.
Keywords: This analysis focuses on “COVID-19,” “Exchange rate,” “GARCH Model,” and “Volatility,” highlighting the core elements of the study.

The study uses daily data from March 9, 2020, to December 30, 2020, capturing a critical period of the pandemic's initial impact. By employing the GARCH model, the research aims to provide a clear and data-driven understanding of how COVID-19 influenced Bangladesh's exchange rate dynamics. These insights are crucial for future economic planning and policy responses.

Lessons Learned and Future Preparedness

The COVID-19 pandemic served as a stress test for economies worldwide, exposing vulnerabilities and highlighting the importance of proactive economic management. Bangladesh's experience with exchange rate volatility during this period offers valuable insights for policymakers and economists alike. By understanding the factors that contributed to these fluctuations, we can develop more effective strategies for mitigating future economic shocks and ensuring greater financial stability.

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Everything You Need To Know

How did the COVID-19 pandemic affect Bangladesh's exchange rate?

The COVID-19 pandemic introduced significant volatility to Bangladesh's exchange rate. This period exposed vulnerabilities in the financial landscape and highlighted the necessity for strategies that mitigate economic shocks and secure financial stability. Specifically, increases in COVID-19 cases correlated with increased exchange rate volatility between the Bangladeshi taka (BDT) and major currencies like the US dollar (USD), Japanese yen (JPY), and Swedish krona (SEK).

What is the GARCH model, and how was it used to analyze Bangladesh's exchange rate during the pandemic?

The GARCH (Generalized Autoregressive Conditional Heteroskedasticity) model is a statistical tool used to analyze volatility in financial markets. It helps to understand how past volatility influences current and future volatility. In the context of Bangladesh, the GARCH model was employed to assess the relationship between daily COVID-19 cases and the volatility of the Bangladeshi taka (BDT) against currencies like the US dollar (USD), Japanese yen (JPY), and Swedish krona (SEK). The model provided a data-driven understanding of how the pandemic influenced Bangladesh's exchange rate dynamics during the period from March 9, 2020, to December 30, 2020.

What were the key findings of the study regarding COVID-19's impact on the Bangladeshi taka (BDT)?

The research indicated that an increase in COVID-19 cases in Bangladesh led to a significant and positive impact on the volatility of exchange rates. Specifically, the volatility between the Bangladeshi taka (BDT) and the US dollar (USD), Japanese yen (JPY), and Swedish krona (SEK) increased with rising COVID-19 case numbers. This finding underscores the interconnectedness of public health crises and financial stability.

What lessons can policymakers and economists learn from Bangladesh's experience with exchange rate volatility during the COVID-19 pandemic for future preparedness?

Bangladesh's experience during the COVID-19 pandemic provides valuable insights for managing future economic shocks. It underscores the importance of proactive economic management, including strategies for mitigating exchange rate volatility. Understanding the factors that contributed to fluctuations in the Bangladeshi taka (BDT) against major currencies like the US dollar (USD), Japanese yen (JPY), and Swedish krona (SEK) can inform the development of more effective policy responses to ensure greater financial stability during global crises.

Why is it important to analyze exchange rate volatility in Bangladesh, especially in the context of global events like the COVID-19 pandemic?

Analyzing exchange rate volatility is crucial because it significantly impacts a country's trade, investment, and overall financial stability. For Bangladesh, understanding how events like the COVID-19 pandemic affect the exchange rate between the Bangladeshi taka (BDT) and currencies like the US dollar (USD), Japanese yen (JPY), and Swedish krona (SEK) helps policymakers and economists develop strategies to mitigate potential damage and ensure greater economic resilience. Such analysis allows for better preparation and response to future economic shocks by identifying vulnerabilities and informing proactive economic management.