Lahore, August 19, 2015 (PPI-OT):“Pakistan has to devalue its currency emulating Chinese strategy to curtail diminishing exports” it was stated by President Pak-China Joint Chamber of Commerce and Industry, Shah Faisal Afridi while commenting on the current Yuan devaluation policy of China.
He said that other strategies such as policy rate cuts and interest rate relaxations in Pakistan have not helped exporters because government borrowings and reliance on banks have always dominated the lending scene.
He regarded currency devaluation indicated by China as valiant step in its move to a more market-determined exchange rate. “The relationship between the real exchange and the level of output is an essential and hot issue for economic growth” said Afridi. For the improvement of international trade devaluation of currency is considered a key tool for the development of economy, he added.
He mentioned that the decision of the People’s Bank of China (PBOC) to devalue the yuan will have global ramifications, in the short, medium and long term. Immediately it will increase the competitiveness of China’s exports at a time when the country’s economy is growing at its slowest rate for six years, said Afridi.
He explained the move of Yuan devaluation as a key reform that allows the market to steer the currency’s value. Central to this is a bid to have the yuan accepted by the International Monetary Fund into its basket of reserve currencies, placing the yuan on par with the dollar, euro, yen and British pound, and boosting China’s global stature, he added.
Faisal Afridi informed that China has been making an all-out push to make Yuan the fifth currency recognized by the International Monetary Fund as an international reserve currency, a designation that could be formalized very soon.
He explicated that China has both matching and competing goals: it has weakened yuan only in a measured way; it hasn’t lowered its currency by 20 percent, for example, because it is fully mindful of the fact that any imprudent or aggressive decline in currency value can lead to massive capital outflows.
He said that by devaluing Yuan China has justified the criticism by USA for misusing its currency. Faisal Afridi regarded currency devaluation as a kind of nationwide sale. He said that if Yuan becomes less valuable relative to the dollar, Chinese imports would suddenly become cheaper in America.
In other words, when the yuan falls by 4 percent, as it has over the past few days, it’s as if every business in China cut its prices for Americans by 4 percent. And just as sales help stores sell more of their products, currency devaluation helps countries sell more exports, boosting the economy.
As the yuan gets cheaper from the perspective of American consumers, the dollar gets more expensive from the perspective of Chinese consumers. That means it’s getting more expensive for Chinese people to import American-made goods, so they’re likely to import fewer of them. Lower demand for US goods could mean slightly slower economic growth in the US.
But it’s important not to forget that the first-order result of a cheaper yuan is that American consumers pay lower prices for Chinese goods. That’s good for American consumers. Faisal Afridi suggested that Pakistan should also devalue its currency or withdraw a slew of taxes and surcharges to help industries grow.
He said that devaluing Pakistani currency would also help to overcome the issues of rising cost of doing business, energy and law and order that have already dampened the private sector’s appetite. He pointed out that only Textile sector is facing a loss of $4 billion in the absence of “remedial” measures by the government.
He explicated that devaluation of the exchange rate will make Pakistani exports more competitive and appear cheaper to foreigners. This will increase demand for exports. Devaluation means imports will become more expensive. This will reduce demand for imports.
With exports more competitive and imports more expensive, we should see higher exports and lower imports, which will reduce the current account deficit-the highest in the history of Pakistan. For this reason, people often treat currency devaluation as a “win” for the devaluing country and a “loss” for the country whose currency gets more valuable, said Afridi.
For more information, contact:
Wardah Ali Gohar
Pakistan China Joint Chamber of Commerce and Industry (PCJCCI)
Mega Tower, 309 – 6th Floor,
Main Boulevard, Gulberg II,
Lahore, Punjab – Pakistan
Tel: +92-42-35777460-02, +92-42-37032203, +92-42-35874353