The dollar rate has exponentially increased in the past few months. This, however, has been occurring after a lull of several months when intermittently, the local currency also improved against the dollar. When these lines are being written, the rupee is being exchanged at Rs171.42 for one dollar. Exactly, one year ago, the dollar-rupee value was Rs161.8366. Now, what has happened that the rupee has nosedived in recent months? The obvious reasons being cited behind the lackluster performance of the rupee is growth-oriented approach of the government and large amounts of imports, mainly related to the food items, have resulted in this catastrophe.
Some people foresaw this increase and started speculating which further depreciated the rupee against the dollar. With more and more people buying dollars, the demand for it increased, eventually increasing the supply of the rupee in the open market. This simple economic mechanism has resulted in an excess of rupees which has significantly decreased its value. Much of these dollars are also being taken to Afghanistan. This also increased the demand for dollars and pushed the price of the currency upwards.
To counter such measures, the State Bank of Pakistan has now introduced a regulation which states that no more than $500 will be issued to anyone unless they give their biometrics, so that the organised buying can be traced and tackled. This will help in a reduction of such activities as well as deter those who have been involved in illegal trades which have increased the price dollars in the country. The Federal Investigation Agency has also been active in investigating foreign exchange companies as reports of hoarding, smuggling and illegal business have been found.
It is crucial for the State Bank of Pakistan to take notice of these things as further increase in the price of dollars can be devastating for Pakistan. Such devaluation will further increase the balance of payments deficit as currently Pakistan’s imports have exponentially increased. Although a devalued currency means that your exports become cheaper to buy for other countries, that is only valuable if you sell a large quantity of in demand products. Pakistan does not have a great export market and therefore, this devaluation is of no help.
Pakistan needs to develop a sound economic policy now more than ever as most economic indicators are showing that the economy is in shambles. The biometrics method will only stop a few from doing illegal business and a few from taking more than the viable amount to Afghanistan but this measure is not going to fix problems that were created by the growth-oriented policy of the government.
