How do the different currencies compete in the global market? Who regulates how much the Pakistani Rupee (or any other currency for that matter) is weighted against the dollar or Euro? Or Dollar vs Euro?
Recently I heard the dollar became weaker that helped US exports and Euro is gaining strength which worries some of the Europeans. Even though I understand the basic logic of ‘week is good’ and ‘strong is concerning’ … it still is different from what we in Pakistan have always strive for … to make Rupee stable or stronger … no?
weaker is not good..it is attractive to importers....stronger currency is invariably good for the exporting country.
A weaker currency only makes importing products from the weak country that much more attractive.
After the abolishment of the Bretton Woods System and the Gold Standard, the countries now follow a system whereby most of the currencies are pegged to a strong currency (the currency in which most of the countries keep their forex reserves) and that is the US Dollar. A country can unilaterally appreciate/depreciate its currency by intimating IMF (i guess)....and the new conversion rate would be applicable henceforth.
In fact, there is a strong case for appreciating the PKR against the USD...since according to local analysts, the real worth of the PKR to USD is prolly about PKR54=1USD, however given my first argument that a weaker currency makes imports that much more attractive, we prolly are restraining ourselves from taking that decision.
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*Originally posted by Khanzada: *
weaker is not good..it is attractive to importers....stronger currency is invariably good for the exporting country.....
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waita sec. China keeps its currency cheaper thru artificial ways so that its products are cheaper when exported to world markets. and you are suggesting it otherwise!
AJ, the control is usually with the independent Reserve boards and their governors. As Khanu pointed out, countries like India, china, Pak would not want to let their currency appreciate because they depend on export income a lot more than one might think. Domestic demand can do away with that....as living standards improve.
This is also a huge risk for countries like China that risk capital flight in the event of such appreciation. Usually when countries make the decision to not appreciate the currency for such reasons one of the other risks is that market makes the adjustment through rising inflation.
Babay: That’s a good point actually. You are actually right. A number of countries decided to hold ‘part’ of their reserves in Euro (Pakistan being one of them) some time back…since Euro maintained a sustaining upward trend in its exchange rate against the dollar. This approach is prudent from (in this case Pakistan’s point of view), since if the US economy goes bust (meaning US dollar loses value and hence our reserves which are kept in US dollars become worthless all of a sudden), we would be left on heaps of paper with no value…eventual country default ho jaega ga khudanakhuasta. Hence, based on the formula of not keeping all your eggs in one basket, part of the reserves were/are being kept in Euros as well.
well currency itself is nothing.. it has something on it's back.. something it represents.. and since it's no longer tied to Gold anymore.. why is the US currency strong?? Is it because oil is traded in Dollars?? what if oil producing countries start selling it for Euros??
Fact of the matter is the US economy is the largest, most stable and the most innovative economy in the world. Look at the high deficits, large consumer debt, large tade imbalances...non eof these things matter because the propects of US economy are and will be for the next 50 years the most rosy on an absolute scale than any other economy in the world. SO move the currecy pegs at your own risk. Move it to Euro..where the avg. age of the population is going to be 80% higher than the US in 30 yrs. Move it to China, where th erisk of capital flight makes the chinkos put down the pork fried rice and run to Uncle Sam for help...move it to the Yen (remember the Yen in the eighties?) where corporate governance and higli leveraged banking sector cannot shake out of its doldrums...plus "Deflation Hai hai".
