US, China currency war may have profound impact on Pakistan’s fragile economy

Dollar depreciation would make Pakistani goods less competitive and put more pressure on the rupee

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DAVOS: As the United States aggressively pursues a policy of dollar depreciation and enters a currency war with China, Pakistan would be at the cross-roads and faces prospects of diminishing global competitiveness.

Also, the currency war between China and US would add to Pakistan’s financial woes and increase its import bill, reported Express Tribune.

The US government led by its unpredictable and abash President Donald Trump have embarked on a collision course with China and to improve its trade balance with them. The US authorities in principle have decided to let the greenback weaken to make its products more competitive and cheaper in the international markets.

Global markets are influx by Chinese goods and the US wants to make inroads and erode Beijing’s stranglehold on the international trading markets. The greenback has depreciated 1 percent, the lowest since December 2014 according to CNBC.

While speaking in a session at the World Economic Forum in Davos, Steven Mnuchin stated US dollar decline was good for the country and added he spends little time worrying about greenback’s weakness over the short-term.

This is bound to have implications on Pakistani exporters, since their goods pricing is dollar denominated and any decline in the dollar would make the country’s good’s less competitive in the EU and British markets. Furthermore, rupee’s further depreciation against a casket of the world’s leading currencies would make international commodities pricier and contribute to a rise in Pakistan’s import bill.

As the dollar weakens and global oil prices rise, this would also impact LNG imports which could get more expensive. According to renowned economist Dr. Ashfaque Hasan of National University of Sciences and Technology (NUST), the depreciation of the dollar would contribute to an increase in imports and consequently the import bill too, aside putting more pressure on the rupee.

 

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