As the rupee's value declines in relation to the dollar, we must understand the most effective ways to address this growing problem. But in order to do that, one must have a basic understanding of Pakistan's current economic situation.
Like every other market for products and services, the market where the dollar is traded operates similarly. Demand and supply are the fundamental concepts in this situation. The limited amount of dollars held by traders appreciate as the value of the dollar increases.
The value of the dollar consequently rises. When the supply of dollars is reduced, the dollar will inevitably begin to depreciate. However, there is only one way to lower the value of the dollar in relation to the rupee: by raising the market's supply of dollars above the level of demand. However, the supply of dollars on the market cannot be randomly increased.
In order to buy more dollars, the State Bank of Pakistan bears the danger of inflating the market by printing more rupees. The question is, how can Pakistan successfully raise its currency supply to meet demand?
The answer is straightforward: increase exports, increase remittances, limit imports, focus on eliminating a debt-driven economy, and find alternate sources for obtaining goods at reduced rates. Increasing the supply of dollars is a long-term process that calls for a nation to methodically boost its international competitiveness. This is not achievable without a national focus and priority on research and development.
If the objective is to preserve the dollar's value in relation to the rupee, then equal amounts of dollars must be supplied into the market as and when the demand arises. Another approach to do this is to rely on loans from various sources. The long-term problem of dollar depletion will continue to exist even if temporary solutions like IMF bailouts are successfully negotiated.
In reality, no one in the ruling class will be impacted by the increase in the price of basic fuels. Not the Khans, the Sharifs, the Zardaris, Ishaq Dar, etc. As always, common people will once again bear the burden of the state's failure to safeguard the interests of its citizens.
If the government really wants to boost the supply of dollars and keep us out of this financial crisis, it needs to develop a multidimensional strategy that addresses structural concerns, encourages private sector growth, and supports innovation and entrepreneurship.
