Why DOLLAR value rises?💲
THREAD:
Points covered,
➡️ Elements involved in rise of💲
➡️Why keeping dollar @ constant value isn't good for economy
➡️ Solution to control dollar🤑
❗This thread doesn't contain any statistical data but a general concept which needs to be addressed.
THREAD:
Points covered,
➡️ Elements involved in rise of💲
➡️Why keeping dollar @ constant value isn't good for economy
➡️ Solution to control dollar🤑
❗This thread doesn't contain any statistical data but a general concept which needs to be addressed.
How currency exchange rate works?
- It depends on demand and supply of currency
For example
If more ppl are buying dollar using PKR & lesser are interested in buying rupee using dollar, dollar goes up eventually.
So, even a common man is involved in making dollar value up & down,
- It depends on demand and supply of currency
For example
If more ppl are buying dollar using PKR & lesser are interested in buying rupee using dollar, dollar goes up eventually.
So, even a common man is involved in making dollar value up & down,
But,
it has a lesser impact on economy as it is being done on a small level.
It is TRADE that determines dollar value.
In simplest wording
➡️More remittances & larger exports means less value of dollar
➡️ More imports means high value dollar
(Money laundering inc.),
it has a lesser impact on economy as it is being done on a small level.
It is TRADE that determines dollar value.
In simplest wording
➡️More remittances & larger exports means less value of dollar
➡️ More imports means high value dollar
(Money laundering inc.),
Current Account Balance is a tool to identify if we are in deficit/surplus.
It works by adding values of Exports+ Remittances & subtracting Import bill.
If value come in negative number we are CAD (current account deficit) ,
If number is positive we are CAS (current acc surplus).
It works by adding values of Exports+ Remittances & subtracting Import bill.
If value come in negative number we are CAD (current account deficit) ,
If number is positive we are CAS (current acc surplus).
Happiness is if you are CAS.
But if your country esp PAK, is facing CAD,
Govt. then is left with two options.
1) Use foreign exchange reserves
➡️Supply/Inject dollar into market
⬇️
Dollar rate get decreased/stopped at a certain rate.
But if your country esp PAK, is facing CAD,
Govt. then is left with two options.
1) Use foreign exchange reserves
➡️Supply/Inject dollar into market
⬇️
Dollar rate get decreased/stopped at a certain rate.
2) Let the dollar be given free hand (open economy).
Now,
Which option is better to adopt among above?
Lets find out,
➡️ Option 1 seems fine to go with as $ will be stopped causing no more inflation but it will be done at a cost of FX reserves.❗
What's bad in it?❓
Now,
Which option is better to adopt among above?
Lets find out,
➡️ Option 1 seems fine to go with as $ will be stopped causing no more inflation but it will be done at a cost of FX reserves.❗
What's bad in it?❓
Taking in Pakistan context, we don't have large fx reserves that can be thrown into market.
Market is huge & with time your reserves will be finished, we ll need more loans to tackle situation.
Remember,
FX reserves are for debt repayment and economic stability, use them wisely✔️
Market is huge & with time your reserves will be finished, we ll need more loans to tackle situation.
Remember,
FX reserves are for debt repayment and economic stability, use them wisely✔️
More bad about option 1 is,
Supplying dollar into market means you are 'ARTIFICIALLY' controlling it.
So why shouldn't we do it?
Because,
It will discourage Exports✖️
Imports get a rise
Increase in CAD
What will happen next?⚠️
Supplying dollar into market means you are 'ARTIFICIALLY' controlling it.
So why shouldn't we do it?
Because,
It will discourage Exports✖️
Imports get a rise
Increase in CAD
What will happen next?⚠️
- Devaluing rupee ( but you are artificially stabilizing rupee depreciation which will haunt you in longer run).
So, conclusion for option 1 is,
It is to control inflation better say delaying inflation at a higher price.
We adopt same strategy in 2015-16-17 mainly.
So, conclusion for option 1 is,
It is to control inflation better say delaying inflation at a higher price.
We adopt same strategy in 2015-16-17 mainly.
Current govt is using OPTION 2,
یعنی ڈالر کو مارکیٹ ریٹ کے حساب سے بڑھنے دیں.
What will happen next?
➡️Sudden rise in inflation but for a shorter period
➡️Exports value will go up
➡️Import items gets more expensive (tough to buy)
Not a good option either but better than 1 🙂
یعنی ڈالر کو مارکیٹ ریٹ کے حساب سے بڑھنے دیں.
What will happen next?
➡️Sudden rise in inflation but for a shorter period
➡️Exports value will go up
➡️Import items gets more expensive (tough to buy)
Not a good option either but better than 1 🙂
Solution to overcome dollar rate problems:
➡️ Increase Exports
➡️Avoid CAD
➡️Imports substitution (tough but possible)
➡️ FX reserves must be kept high to tackle any major crisis
Trading in local currencies instead of dollar can help a lot but be ready for consequences too ♨️
➡️ Increase Exports
➡️Avoid CAD
➡️Imports substitution (tough but possible)
➡️ FX reserves must be kept high to tackle any major crisis
Trading in local currencies instead of dollar can help a lot but be ready for consequences too ♨️
That was some basic understanding of dollar concept, but tbh any economic model is a failed one if you are not adopting Islamic Principles for economy in it.
Will have a detail thread on proposed islamic principles for economy soon IA.
Will have a detail thread on proposed islamic principles for economy soon IA.
West has set standards for themselves and we are being slaved to their models of economy while having our own.
A Muslim country will never have a healthy shiny economy based on Interest rules.❌
A Muslim country will never have a healthy shiny economy based on Interest rules.❌
Subtopic:
In previous months and esp in last year,
We saw a trend of dollar decreasing against PKR.
Why that happened and why it is rising again in Pakistan?
➡️ Covid made world economy/trading a complete shutdown
➡️Imports got lowered
➡️Local industries got boom (esp textile)
In previous months and esp in last year,
We saw a trend of dollar decreasing against PKR.
Why that happened and why it is rising again in Pakistan?
➡️ Covid made world economy/trading a complete shutdown
➡️Imports got lowered
➡️Local industries got boom (esp textile)
➡️Govt schemes attracted FDI (foreign direct investment)
Interest rate was taken up to 12%.
➡️ Dollar supply gone up⬆️
➡️ Current account was in surplus for continuous 5 months after many years
➡️Economy got stability
Moody changed Pak's outlook from negative to 'stable' 🇵🇰
Interest rate was taken up to 12%.
➡️ Dollar supply gone up⬆️
➡️ Current account was in surplus for continuous 5 months after many years
➡️Economy got stability
Moody changed Pak's outlook from negative to 'stable' 🇵🇰
What's happening now?
➡️Covid restrictions are being taken off
➡️Supply demand chain massively disturbed across world🌐
➡️ Petroleum prices are highest globally causing big inflation
➡️ Demand of dollar increase means pressure on PKR
➡️Covid restrictions are being taken off
➡️Supply demand chain massively disturbed across world🌐
➡️ Petroleum prices are highest globally causing big inflation
➡️ Demand of dollar increase means pressure on PKR
Better approach is let dollar adjust itself according to market situation, any big interventions by SBP means we are on same back track from which we are coming out.
➡️ Exports will be lowered if we try to control dollar
➡️ More CAD, more loans, more inflation ♻️
➡️ Exports will be lowered if we try to control dollar
➡️ More CAD, more loans, more inflation ♻️
Larger Exports value, remittances, FDI, Supporting local industries, Made in Pak is need of hour ✅
Otherwise,
Same shit, govt can avoid daily embarrassment by giving relief to people taking bulk of loans,putting country at a risk of default, letting future generations suffer.🎭
Otherwise,
Same shit, govt can avoid daily embarrassment by giving relief to people taking bulk of loans,putting country at a risk of default, letting future generations suffer.🎭
Hello @threadreaderapp can you compile this thread, please?
Thankyou everyone! 🤩
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