First authorities saw a silver lining in the collapse of the rupee over the last couple of years in that at least the depreciation was driven by market forces and the local currency was moving towards its Real Effective Exchange Rate (REER). Now they are celebrating the strengthening of the rupee because, once again, it is driven by market demand-and-supply factors. And though the state bank is right that this is perhaps the first time ever that the Pakistani rupee has oscillated both ways, completely on its own, in such a short period of time, it should still take the trouble to explain just what each trend means for the wider economy.
It’s also important to understand the reasons for this trend reversal, especially if we are going to make such a show about it. Dollar weakness is chiefly driven by all the uncertainty surrounding the final result of the US presidential election and all the damage the pandemic is doing to its economy; to the point that the dollar’s status as the international reserve currency has also come under unprecedented strain. Then there’s the record inflow of remittances over the past few months which has made the reserves look a lot prettier, bolstering the rupee. Other factors must also have played a part, but these are by far the most crucial. And there’s little, if any, part the Pakistani government could have played in any of them except insist and then hope that expatriate Pakistanis send back more money than before.
It’s also rather interesting to note that the rupee is having all this life pumped into it, purely by market forces of course, just when the government is trying to do whatever it can to stimulate exports and add value to the present basket. Now all the time the information ministry heaps praise on the government because the rupee is getting stronger against the dollar, as if to imply that a country the size of Pakistan is somehow doing better than the United States, businessmen who were poised to hop on the export bandwagon are suddenly left scratching their heads. And they don’t feel much better when the morning news quotes the most senior ministers boasting how this trend is expected to continue. If it is really a very good thing and all the celebration is justified, the government should take everybody on board and explain just what these new trends signify for the economy and their jobs and lives. *