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Thursday, 28 July 2011

Write a note on delinking of rupees from dollars

In 1971, Pakistani rupee was linked with the US Dollar. In 1982 it was from delinked from US Dollar. Now the value of our currency will be determined according the demand and supply of foreign exchange market. If the domestic economic condition is stable balance of payment is favorable then value of currency increases, otherwise it falls. The exchange rate is fixed daily by the State Bank of Pakistan.

Causes of Delinking :-
1. Eighty nine countries out of 142 has adopted the managed floating exchange rate. Pakistan also followed them.
2. It will increase the export of traditional and non traditional exports.
3. It will ensure the positive and independent exchange rate policy.
4. It will discourage the out flow of capital.
5. It will encourage the Pakistanis working abroad to send their income in Pakistan.
6. It will reduce the prices of exports arid with attract the foreign buyers.

CRITICISM :-
1.Devaluation :-
The delinking of rupee has devalued the currency.

2. No Increase in Exports :-
The delinking could not increase the exports of the country.

3. Deficit Increased :-
The balance of payment deficit is increasing day by day because as the value of our currency is falling deficit is increasing.

4. Increase in Debt :-
The total volume of debt has been increased.

5. Import Volume Increased :-
By delinking the value of imported goods is increasing.

The delinking of dollar was a good step but we can not reap the benefit due to the contraction in the world trade.

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