Another round of devaluation

THE Pakistani rupee slumped 3.8% against the dollar on Monday before slightly recovering in what appeared to be the third currency devaluation in seven months by the Central Bank, traders said, amid a balance of payments crisis. The rupee closed at 119.85 per US dollar on Monday after opening at 115.63. Earlier in the day, it traded close to 121 per dollar.
The rupee has fallen by about 14% since December 2017 and the way the devaluation is being allowed should leave no doubt that the rupee would shed its value further in coming days and weeks. That the State Bank did not intervene and allowed a nose-dive in rupee-dollar parity on Monday is also a testimony that the authorities concerned are allowing devaluation quietly without formal announcement. Vulnerability of the economy, widening current account deficit and a fall in the foreign exchange reserves are being cited as reasons for devaluation but past experience shows things improved not a bit after devaluation and instead the country and its people suffered immensely. It is generally argued that a weak domestic currency makes a nation’s exports more competitive in global market and this enhances economic growth. This seems to be the main reason offered by economic managers but there are no positive signs of the previous two rounds of devaluation since December last year. Exports have marginally gone up and no increased economic activity is in sight. As against this, imports have become costly and as a result inflation is making life of the people miserable. It is time we discard old notions and accept the most prevalent view that globalisation has led to fragmentation of production across different countries and rise of global value chains exchange rate matter less nowadays.

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