SBP asked to devalue currency
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.