11-24-2010, 04:13 PM
Devaluation of currency has many impacts and trigers.
As at current Pakistan is going through the ever worst economic situation where we have huge deficit of balance of payments and balance of trade. Ofcourse eigther Govt can borrow from IMF, world bank etc to meet this deficit or it can go for other remedies. Currency devaluation is one of these remedies for controlling increasing deficit. Whem currency is devalued decrease in the local demand of imported goods occur hence resultant decrease in imports and ultimate improvement in trade deficit. Similarly local goods get more value internationaly in terms of Pak rupees so export activities are encouraged and again ultimate improvement in deficit of trade balance.
But this devaluation process is very critical to manage because in economy like Pakistan where we pay a major %age of GDP in paying off our foreign debts and interest on them, it can have bad results as well. We need more Pak rupees to settle our foreign liabilities. Also currency devaluation can bring a flood of infaltion which has happend in case of Pakistan.
As at current Pakistan is going through the ever worst economic situation where we have huge deficit of balance of payments and balance of trade. Ofcourse eigther Govt can borrow from IMF, world bank etc to meet this deficit or it can go for other remedies. Currency devaluation is one of these remedies for controlling increasing deficit. Whem currency is devalued decrease in the local demand of imported goods occur hence resultant decrease in imports and ultimate improvement in trade deficit. Similarly local goods get more value internationaly in terms of Pak rupees so export activities are encouraged and again ultimate improvement in deficit of trade balance.
But this devaluation process is very critical to manage because in economy like Pakistan where we pay a major %age of GDP in paying off our foreign debts and interest on them, it can have bad results as well. We need more Pak rupees to settle our foreign liabilities. Also currency devaluation can bring a flood of infaltion which has happend in case of Pakistan.
