Should we be concerned about the almighty dollar game?

Published: January 27, 2014
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Increasing the interest rate to keep the dollar in check will risk inflation. Who wants to raise prices? Any takers? PHOTO: AFP

As someone who works in the finance industry, I am frequently asked, at social events, about where I think the dollar is headed. Although I’m not sure if people are genuinely showing interest in our economy or just trying to count their dollars their loved ones sent them from abroad.

Regardless of their reasons, I value their intrigue nonetheless.

The greenback affects our lives whether we like it or not.

Pakistan looks to the US for just about everything – aid, trade, political arm twisting, you name it. So it’s important to understand how our economy reacts to the dollar game.

But whether we should only be concerned about the dollar is the real question.

The dollar market works like any other market. Its main driver is supply and demand. Recently, the dollar has dipped a little, raising questions about whether this is a result of economic wheeling and dealing by the government or something more temporary only to fizzle out soon.

The biggest source of dollar for us is foreign remittances. This phenomenon picked up post 9/11 when a myriad of people, in fear they might be targeted for belonging to a certain race and country, sent as much as their whole life savings back home. The huge dollar influx meant more of it was sold in the market, thus creating a demand for the rupee.

I’m sure most of us remember the golden days when a dollar cost no more than Rs60. Government representatives of that time, some of whom feature regularly on talk shows these days, would like to tell you it was nothing but pure genius on their part which was the real reason for the favourable rate.

You may now go ahead and roll your eyes at that.

The remittance volume is still quite high. What has changed is our need to make debt payments back to the International Monetary Fund (IMF) and other creditors. What need to change are our priorities. Depleted dollar reserves have become a frequent story in the business section of any newspaper.

While the state bank has a few options up its sleeve – namely printing more money or increasing the interest rate to keep the dollar in check – they run the risk of inflation.

Who wants to raise prices? Any takers?

With a majority of our population under the poverty line, raising prices is one problem nobody wants.

The only solution is to strengthen our economy and improve our tax collection. There is a need to ensure proper supply of gas and electricity to industries and to promote merit over nepotism and corruption. We should not rely on foreign remittance as who knows when that well may run dry.

The question should be about where our economy is heading and not the dollar.

Until we actually look at the strength of our economy first, you can bet your bottom dollar that darker days lie ahead.

Asim Shuaib

Asim Shuaib

A finance executive who writes in his spare time. Gym aficionado, MMA fan, and a kickboxing legend in the making.

The views expressed by the writer and the reader comments do not necessarily reflect the views and policies of The Express Tribune.