Devalation of currency is two way sword, it has benefits and disadvantages
The current Problem is People are trying their best to convert pak currency into Dollars du to Lack of trust in Rupee, Such Trade was banned till early 90s, At that time it was "illegal" to keep Dollars in Home or trade them open, All open deals were in Black Market and there were huge risk of Fake Dollars, At that time Govt was annoncing the devalaution of currency officially like 3 to 6 % per year on SOS basis, And the moment Govt used to devalue the Currency there used to be boost in Foreign investments, remittence and export as people used to be sure that If currency is devalued in October, possibly it will not be devalued in 6 months or one years, So Pakistan was getting some benefit of low currency.
But today it is matter is lack of trust, Rupee is floating and devaluing on daily basis, In this situation Country is getting all the disadvantages of currency devaluation but no benefit, as if I want to transfer the money to paksiatn for some investment, I have no trust that process will stop when? And gamblers are minting money by creating hoax.
I guess Govt just need to regulate open Market as such market can only survive if State Bank have sufficient surplus money to flood the market with Dollars otherwise pak Ruee will be down to earth. As a side effect Putting resitrictions in open Market The Trust of foreign investors might go down, which is already low To counter it Govt can formulate some other official way.
Regarding Flow of currency in Dubai, it will soon be reverting as investors in Realestate Stock are having massive losses. But that all money may not come Back soon as I am afraid some 50% will be lost in losses, and remaning will be Parked in foriegn Banks or will find some other destination till recovery of Markets in pakistan.
hak replied on Saturday, October 18, 2008 04:54 PM
Jameel, why is it that we never saw such a rapid and consistent devaluation till the time Musharaf was in command.I once did the mistake of purchasing dollars whem Musharaf took over at 68, as i remember during that period also some abnormal fluctuation was seen.And i kept praying during all that period for dollar to come up but instead it kept floating between 62 to 66 and never gave me chance for break even either.Finally i had to sell them at 66 after keeping for almost 7 years.But eversince Musharaf departed, we see how fast our currency has gone down and eventually dollar has come up.I don't have enough acumen of the economic affairs but can understand that present situation of our country can not be totally linked with the recent global credit crunch but something not right within our system.We are heading towards hyper inflation that can ultimately damage the monitory system of the state. |
Jameel replied on Saturday, October 18, 2008 05:12 PM
You are right, Infact the thing were going out of hand of Musharraf Govt even in last year of his rule but it was not that bad, You know due to some reasons Rupee also devalued a lot in previous politacal Govts,
I dont wnat to comment on Zardari, he may be good man but he has no popularity as a leader, neither inside country, Nor Outside especially Arab Countries, Saudi Govt must have helped us in this time as their economy is stable but due to some reason they dont like him rather they are demading payments of oil which was given on credit in past 2 years.
China historically has helped us technically but never helped in substantial foreign currency aid.
But my personal feeling is there was no magic in Musharraf if he would be still in Power Pak currency would devalue, may be not 30% may be 20% like India, But this is fact that Pak currency had been most stable in Musharrf era, if you start from 1971 to 2008. But reasons were multifactorial. |
Naveed Yaseen replied on Saturday, October 18, 2008 05:14 PM
> as if I want to transfer the money to paksiatn for some investment, I have no trust that
> process will stop when
This 'when' part is speculation. Keep it separate from investment. There is not much wrong in speculating as long as one knows he is speculating and keeps it within limits.
If one likes to do speculation, then do it in separate accounts than investment (even if underlying assets are same). That is because speculation and investment have different business mechanism, different source of returns, different time-probability surface of return (in 3D return-probability-time coordinates).
From investment point-of-view, if the said investment is being offered at good bargain compared to it's inherent value, then buy it regardless of anticipation of market moves.
Same thing said in other words,,, from investment point-of-view, if you are considering to buy even a little share, decide with a mindset like if you are buying that whole business with intent of getting profits from business operations rather than market price movements. |
Naveed Yaseen replied on Sunday, October 19, 2008 12:42 AM
Reading my writing again, it was perhaps bit too lax on speculation than should have been.
> There is not much wrong in speculating as long as one knows he is speculating and keeps it
> within limits.
I think speculating is, in many ways, similar to gambling on cards. |
Rehman replied on Sunday, October 19, 2008 04:49 AM
Shaukat Tareen has said on Oct 18th that Pak rupee needs to be flexible. In the past, it was made temporarily strong. and was not at its true value. in other words, he is saying that Rupee has moved or moving towards its true value. SO in my view, there is no chance of Rupees fetting stronger than Rs. 80 to a US $. It will move around 83 - 90 in the next 2-3 months depepnding how quickly the Govt. can get foreign funds. and stabilized soemwhere around 80-85.In any case, it is not going to get stronger than Rs. 80 |
Habib replied on Sunday, October 19, 2008 05:45 AM
Yes Rehman, Rupee has been atrificially strong in the Era of Musharaf. But had both good and bad aspects, I remember in 1999 Dollar was 57 after stablization [musharraf take over] So it should be 114 in 2009, Or Musharraf should have done some concrete steps to contain defeciat to very low,
To decrease the defict he should have done
1, increase exports by industry Nil done in that regard
2, Decrease imports rather opposite done too many ACs and cars were assembled most of raw was imported.
3, Privitazation by pak bodies [mostly sold to Foreign companies] who are taking money out at this time.
4, He should have imposed tarrif on split ACs as huge drain of load has disfigured Electrical supply and producation, And resulted in more load in Oil bill as we are generating most of electricty by oil.
5, He was unable to contain the Inflation as a result Pakistani products became so expensive in Foreign currency that exports were affected.
During his period pakistan got lot money by investors but you know most of that is liquid so you are very happy, but that that happiness is short lived as that liquid flows to other sites soon
The Good moves in his Govt were
keeping up CNG stations otherewise there would have been even more fuel bill.
Continaing the process of Privitazation.
Most of polices of shoukat were short lived as they are showing now.
It recalls me the Blind nationalizations done by Butto in 1972 to 1777, The repercussions and bad effects of these steps fell out next 10 ys of pak economy.
Inshort you can live in world by production and boosting export, as to cater the needs of 200 Millon people you have to have some imports. Not by selling your companies as there is end to it on some point. Unfortunately current Govt is also not interested in Concrete economic reforms and they they are interested in selling "Land" to others as no more companies are left or begging. I feel Govt should immediately stop open cureency market at least to stop drain of Dollars in regional market. |
Pardesi, Jeddah replied on Sunday, October 19, 2008 08:54 AM
Considering the above points, not in 100 agreement though, following should be taken into account before applying any formula of devaluation, especially to Pak Rupee:
Criticising Govts. aside, there was is no magic in either of their hands. After 9/11 we saw a CONTINUOUS large influx of FCY from overseas Pakistanis & US funding despite no major Capital investment project. That was misused by banks in consumer loans while on the other hand it caused the real estate's exceptional price hike. That gave rise to imbalanced economic growth. Leasing, mashroom growh in Mobile phones & unorganised housing societies were promoted at the expense of basic & diversified sectors like, Agriculture, Power, Water management, Infar-Structure, Health & Education. Over-suppressing will definately blow-back. Presently, badly affected basic & diversified factors cannot sustained the increasing demand magnified by international financial crisis.
Production oriented businesses cannot sustain very long without having these basic & diversified sectors' development & will definately graviate towards more stable economies (the flight of capital). This multitude of imbalance growth, flight of capital & absence of US aid, despite having best opportunity to growth in the past, has now pulled the riens of local currency.
What to do then? Till when?
Naveed has explained it in the discussion of speculation.
In the short-run:
US$ against rupee will remain vulnerable & thus v cannot apply hard & fast rule as hitorically explained by Jameel.
In the long-run:
My submission to this is that an automatic correction has started its course but it will take approx. 3-6 years. Oil prices have already come down after gamblers have taken their share away. Western countries' demand for consumables have been considerably cut-down due to recession in their economies. Overseas are ready invest if things stbilise. Arab world is also ready to invest & having a reasonaly good demand of agricultural products. Taking these opportunities into account, we must invest in basic & diversified sectors to resume economic growth. (I can now criticise the Govt. policies & their present intentions but the discussion will be mis-directed). If we see signs of concrete & positive steps otherwise the situation may become (Allah forbid) more chaotic & lead to further deterioration. |
hak replied on Sunday, October 19, 2008 12:25 PM
I am unable to understand how come rupee can be kept artificially strong, and that too for almost 8 years.How something artificial can sustain that long is not coming to my mind at all.Looks like as if few frieds are a bit reluctant in giving credit to Musharaf, because if it is accepted that rupee was genuinely strong during Musharaf era, then credit will go to him, which they can't digest.What present rulers have infact done is that they tried to control the soaring oil prices through subsidy,and it gravely effected our reserves and brought them to almost 4 billion from 19 billion in a couple of months.It simply means that present govt has been totally inefficient in controlling the situation.Asking loans going dood to door is no art to stabilize the situation and neither it is a way of dignified nations.Induction of technocrats in the federal cabinet is must.Conventional politicians have no aptitude to prioritize and address the vital issues faced by the nation.Simple example can be given of a person who has been twice the PM of this country and claims to be the leader of second largest party of Pakistan, for him reinstatement of ex-chief justice is the only challenge faced by this country. |
Jameel replied on Sunday, October 19, 2008 01:03 PM
Dear Haq, this is not question Musharraf was good or zardari is good, we are taking about mechanism, infact no one has looted the centaral Bank. Current Govt have account of each and ever paisa, The point is in Musharraf period there had been influx of money from various sources
American Aid [Borrowing]
9/11 influx [liquid influx]
selling of compnies like PTCL and many banks to UAE based companies. [Liquid]
and Foreign investment in pak stock [again Liqid]
In Musharraf era the example of pakistan had been like factory which had no production, but contine taking loan, accepting investment, selling its assests to boost the capital, but used this all money to increase spending instead of increasing prodction.
At that time you can definitely argue that State bank reserve was more
but can you tell how many Factories were istalled and what whas done to increase the exports.
Shoukat Aziz was banker and he was running a country like a Bank, If you know typically Bank has no "production" rather main aim of Bakers is to earn money out of money and boost capital, infact all money bank had belng to others and they can take when they want. Country cant be run like this it had many national and political and regional isses. |
riaz replied on Sunday, October 19, 2008 02:27 PM
naveed can you explain how speculation is similar to gambling on cards? |
hak replied on Sunday, October 19, 2008 06:29 PM
Yes there was influx of money in his time, and today what we are short of, liquid only.He fetched foreign investment of worth 6 billion dollars in few years only through his unique international statecraft. |
KAR replied on Sunday, October 19, 2008 07:23 PM
Speculation:
Having cash to buy any commodity be a stock, real estate, grains, FOREX, oil, etc. for a very short term only to speculate that it will increase in its value, and sell it in few minutes to a few months at a profit. The speculator neither needs that commodity (actual user) nor having any idea about its fundamental use. Actually if the commodity stays with him for longer period he will lose. He just speculates/guesses that it will increase in its value usually without any real demand from actual users.
Usually speculators make a spiral (like gamblers sitting together) where one speculator sells his commodity to other and the cycle continues till for any reason the other speculators call it a day and the last person holding the commodity has to take the brunt (he has to pay the premium of all the speculators before him) and bust happens. It is like passing the parcel game where everybody enjoys till the music is on. When the music stops the guy holding the parcel has to quit. He has no idea why the music stops while he was holding parcel (no fundamentals).
Gambling:
A person enters a casino with money. He sits on a table and bet (calls his shots). There are no fundamentals involved while he is guessing. He just guess/speculate a number from top of his head and hopes that he will. If he wins he wins and continues to play and keeps on guessing. If he loses he loses and has no idea why his guess didn’t work.
The similarity between the two is guessing without fundamentals. |
Naveed Yaseen replied on Monday, October 20, 2008 12:01 AM
> naveed can you explain how speculation is similar to gambling on cards?
KAR has stated it well. I would add some more
• Both have some element of random probability
• Both have some element of inter-dependant choices by players
• In both, expert players deceive their moves, pretend what they don't plan to move, hide what they plan to move
• In both, experts make under-table alliances to increase their odds of winning by hidden communication and coordinated moves
• In both, the expert alliances lure in novices by letting small wins in beginning, and knock them out late after novices have put in large stakes
• Both attract similar personalities
• Both produce no net economic value
• Both are highly addictive
• Both, at addiction, have similar social consequences |
