SBP asked to de­value cur­rency

The Pak Banker - - NATIONAL - Ja­hangir Hayat

State Bank of Pak­istan (SBP) needs to de­value Pak­istani cur­rency em­u­lat­ing Chi­nese strat­egy to cur­tail di­min­ish­ing ex­ports. This was stated by Pres­i­dent Pak-China Joint Cham­ber of Com­merce and In­dus­try, Shah Faisal Afridi while com­ment­ing on the cur­rent Yuan de­val­u­a­tion pol­icy of China. He said that other strate­gies such as pol­icy rate cuts and in­ter­est rate re­lax­ations in Pak­istan have not helped ex­porters be­cause gov­ern­ment bor­row­ings and re­liance on banks have al­ways dom­i­nated the lend­ing scene.

He re­garded cur­rency de­val­u­a­tion in­di­cated by China as valiant step in its move to a more mar­ket-de­ter­mined ex­change rate. "The re­la­tion­ship be­tween the real ex­change and the level of out­put is an es­sen­tial and hot is­sue for eco­nomic growth" said Afridi. For the im­prove­ment of in­ter­na­tional trade de­val­u­a­tion of cur­rency is con­sid­ered a key tool for the de­vel­op­ment of econ­omy, he added.

He men­tioned that the de­ci­sion of the Peo­ple's Bank of China ( PBOC) to de­value the yuan will have global ram­i­fi­ca­tions, in the short, medium and long term. Im­me­di­ately it will in­crease the com­pet­i­tive­ness of China's ex­ports at a time when the coun­try's econ­omy is grow­ing at its slow­est rate for six years, said Afridi.

He ex­plained the move of Yuan de­val­u­a­tion as a key re­form that al­lows the mar­ket to steer the cur­rency's value. Cen­tral to this is a bid to have the yuan ac­cepted by the In­ter­na­tional Mon­e­tary Fund into its bas­ket of re­serve cur­ren­cies, plac­ing the yuan on par with the dol­lar, euro, yen and Bri­tish pound, and boost­ing China's global stature, he added.

Faisal afridi in­formed that China has been mak­ing an all­out push to make Yuan the fifth cur­rency rec­og­nized by the In­ter­na­tional Mon­e­tary Fund as an in­ter­na­tional re­serve cur­rency, a des­ig­na­tion that could be for­mal­ized very soon.

He ex­pli­cated that China has both match­ing and com­pet­ing goals: it has weak­ened yuan only in a mea­sured way; it hasn't low­ered its cur­rency by 20 per­cent, for ex­am­ple, be­cause it is fully mind­ful of the fact that any im­pru­dent or ag­gres­sive de­cline in cur­rency value can lead to mas­sive cap­i­tal out­flows.

He said that by de­valu­ing Yuan China has jus­ti­fied the crit­i­cism by USA for mis­us­ing its cur­rency. Faisal Afridi re­garded cur­rency de­val­u­a­tion as a kind of na­tion­wide sale.

He said that if Yuan be­comes less valu­able rel­a­tive to the dol­lar, Chi­nese im­ports would sud­denly be­come cheaper in Amer­ica. In other words, when the yuan falls by 4 per­cent, as it has over the past few days, it's as if ev­ery busi­ness in China cut its prices for Amer­i­cans by 4 per­cent. And just as sales help stores sell more of their prod­ucts, cur­rency de­val­u­a­tion helps coun­tries sell more ex­ports, boost­ing the econ­omy.

As the yuan gets cheaper from the per­spec­tive of Amer­i­can con­sumers, the dol­lar gets more ex­pen­sive from the per­spec­tive of Chi­nese con­sumers. That means it's get­ting more ex­pen­sive for Chi­nese peo­ple to im­port Amer­i­can­made goods, so they're likely to im­port fewer of them.

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