Quest for a stable currency – Companies
The central banks of Pakistan and China renewed their commitment to expand bilateral trade and investment in Chinese yuan. To that end, they signed a memorandum of understanding on establishing yuan clearing agreements during a recent visit by Prime Minister Shehbaz Sharif to China.
According to a senior banker, Customs clearance in yuan provides Pakistan with access to Chinese banks and facilitates commercial borrowing from them.
The funding facility was increased from 10 billion yuan to 40 billion yuan or approximately $6 billion under the latest currency swap agreement (CSA) to settle import payments during the fiscal year in Classes.
Pakistan imported goods and services worth $18 billion last year, of which import payments worth $4.5 billion were paid in Chinese yuan. In FY21, Islamabad made over 26 billion rupees in interest payments to China using 30 billion yuan ($4.5 billion). Last year, we exported $2 billion worth of goods and services to China.
China, Japan and India have reportedly started selling US Treasuries in recent weeks to help prop up their currencies
The currency swap deal aims to reduce the country’s reliance on dollar payment settlement, help stabilize foreign exchange reserves and support the rupiah against the greenback. However, there is no immediate impact on the value of the rupee against the dollar in the foreign exchange markets.
Finance Minister Ishaq Dar and State Bank of Pakistan Governor Jameel Ahmad agreed during their November 7 meeting that the administrative efforts of the government and the regulatory/policy measures taken by the SBP resulted in the stability of the rupee and the limitation of the instability of the exchange rate.
Further measures are underway to discipline the finicky segment of the currency market, as the target of cutting the rupee-dollar parity below Rs200 – set by Mr Dar and accepted by the SBP Governor – has not yet been reached. The rupee was quoted at Rs221.65 against the greenback on November 8, according to data from SBP.
The SBP and the Federal Investigation Agency have decided to take joint action against illegal money changers to curb speculation and the gray market and stop the “smuggling” of foreign currency through Peshawar. It is likely to bridge the gap between interbank markets and curbside markets.
According to a news report, the SBP and the government had earlier decided to halve foreign exchange purchases per person to $5,000 and cap the annual remittance limit at $50,000.
Pakistan is not alone in trying to defend the value of its national currency against the dollar, as the greenback strengthens thanks to rapid and significant increases in interest rates by the US Federal Reserve.
Sharp interest rate hikes in the United States to curb high inflation are beginning to disrupt the financial system to such an extent that some US analysts are warning they could snowball and cause serious instability. This expectation has led many central banks in developed and developing countries to take steps to strengthen the value of their national currencies by buying their own currencies.
Most countries, such as Japan, India, South Korea, Taiwan, the Philippines, Vietnam, Malaysia and Thailand, have resorted to monetary interventions. They succeeded in reducing the pace but not in stemming the fall of their currencies. To quote one analyst, their efforts highlight both the interconnected nature of the financial system and its vulnerabilities.
China, Japan and India have reportedly started selling US Treasuries in recent weeks to help support their currencies. As foreign reserve balances decline, analysts say there is a risk that countries will start selling US Treasuries more aggressively.
Reserves – held in major currencies such as the dollar, pound and euro – fell as most currencies weakened against the greenback. Analysts note that a weaker currency means it costs more for a country to import food, energy and other goods.
Meanwhile, Washington Post has reported that the United States privately urges Ukraine to signal its openness to negotiating with Russia. Ukraine’s president’s refusal to speak has sparked concern in parts of Europe, Africa and Latin America, where the war’s effects on food and fuel prices are taking their toll the hardest feel. “The fatigue of the war in Ukraine is real for some of our partners,” said American officials quoted by the newspaper.
The UK crisis is the first recent case where an advanced economy with its own currency arguably had difficulty getting both the financing it needed and the external financing it needed, says Brad Setser, a trade expert world and capital flows.
The UK government’s net borrowing this year will be around 4.3% of its GDP, just slightly more than the corresponding figure of 4% for the US, according to the International Monetary Fund’s Global Outlook estimate. And Britain’s current account deficit will be around 4.8% compared to America’s 3.9%.
To quote seasoned analyst Peter Coy, the strong dollar is also creating problems in the United States. It makes its exports more expensive and its imports cheaper, which worsens the current account deficit.
The United States could one day find itself in the same mess, says Coy, that Britain is currently facing, while quoting other experts who say the current situation in the United States is very different from that in the Kingdom. -United. The dollar is an international currency and the United States enjoys relative political stability.
However, on November 4, the greenback fell after the US Nonfarm Payrolls report for October showed the US unemployment rate in October had fallen to 3.7% from 3.5% in September. %, and wage increases slowed to 4.7% year-over-year. year in October from 5pc in September. The U.S. dollar index, a measure of the greenback’s value against six major currencies, fell 1.9% to 110.77. It was the biggest one-day percentage loss since November 2015.
Reacting belatedly to the depreciation of the dollar, the Russian ruble appreciated on November 7 by 1.5% against the greenback at 61.19. This is because the Russians are selling oil in their own strengthening currency.
Posted in Dawn, The Business and Finance Weekly, November 14, 2022