Paucity of foreign reserves: Rupee down 27 paisa against dollar

The rupee was down by 27 paisa against the US dollar in the interbank session on Monday as the foreign reserves continue dwindling amid repayments while there are no new pledges of any financial support, aid or investment.

In this scenario, the local currency settled at Rs227.41 against the dollar when compared with the previous session’s closing of Rs227.14.

Meanwhile, there is seemingly no mechanism to plug in the gap between the official interbank exchange rate and the open market returns, which boosting the black market, hoarding and smuggling of the US dollar. Hence, the rupee was traded for Rs234.65/236.99 in the open market.

Earlier in the day, it was reported that hoarding is main reason behind the dollar shortage in Pakistan, as a FBR member said taking action against speculators and hoarder of the greenback was a responsibility of regulators and law-enforcement agencies.

“About 90 percent of the dollars are being hoarded in Pakistan while currency smuggling has just a 10 percent share,” said Mukarram Jah Ansari about an assessment carried out by the FBR.

In order to mitigate the risk of default, the currency dealers have offered to finance imports of up to $50,000 each, Exchange Companies Association of Pakistan President Zafar Paracha said in a statement.

During the current financial year, the Pakistan rupee has plunged by Rs22.55 rupees or 9.92 percent against the dollar, the loss since Jan 1 stands at 0.43 percent.

On the other hand, the rupee suffered huge losses against the pound sterling with the closing interbank exchange rate of Rs276.32 per GBP against the previous session’s rate of Rs270.36.

Similarly, the rupee weakened by Rs3.8 against euro which closed at Rs242.93 in interbank trading on Monday.

Strong greenback bad news for the world

The US dollar is the world’s dominant currency and plays a key role in global trade but its dominance means a plethora of problems for other nations, especially the poor countries and emerging markets.

And right now, the Federal Reserve’s determination to crush inflation at home by raising interest rates is inflicting profound pain in other countries — pushing up prices, ballooning the size of debt payments and increasing the risk of a deep recession.

Prasad, who is an economist at the Brookings Institution and professor at Cornell University, says, “This is ultimately going to entrench the dollar’s dominance even further,” Prasad said. “That is certainly a serious problem for low-income countries that have high levels of foreign debt, especially dollar-denominated debt.”

“For the rest of the world, it’s a no-win situation,” he said a fragile currency can sometimes work as a buffering mechanism, causing nations to import less and export more. But today, many are not seeing the benefits of stronger growth.

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