Dhaka, Oct. 11 -- Not so long ago, just over a year, Bangladesh Bank (BB) was criticised for failing to meet the rising demand for US dollars. Foreign exchange reserves had fallen from a peak of about $48 billion to less than $20 billion, and panic about dollar shortages dominated headlines. In a striking reversal, BB is now doing the opposite: buying dollars from the market, or in effect removing excess dollars, in an effort to stabilise the exchange rate while rebuilding reserves.

Over the past three months alone, media reports suggest that BB has purchased around $2 billion, something unimaginable a year ago. Several forces lie behind this turnaround, but two stands out. First, the US dollar has weakened globally against a broad range...