It's been more than half-a-decade that the major global economies have been grumbling and protesting that China has artificially kept its currency undervalue to promote its export. China is an export-driven economy. It has accumulated forex reserves of over 2.2 trillion dollars.
Unlike other global markets, since the size of US bond market is huge and liquid, therefore, one quarter of its investments are in US treasuries. It sells large amount of Chinese yuan to buy dollar, which allows Reminby to stay weak. Recently, concern also voiced by China's Asian partners. Indonesia said to be reconsidering its free trade pact with China. India complains of China's alleged unfair trade practices.
Asia's giant economies Japan and South Korea are also feeling the pinch. In the 1st quarter of 2009, SE Asian leaders met in Thailand to fight against global economic turbulence, as region's export fell by 35 percent in dollar terms from July/December 2008 resulting in devaluation of Asian currencies. They came up with a fiscal stimulus package and eased monetary policy to help offset losses in exports.
Despite all odds, facing tough global environment most of the Asian economies decided to accept the challenge and came up with extraordinary efforts and succeeded to increase their exports. If we speak about our competitors, in 2009 only two countries opted for a weak currency. Bangladesh takka lost half percent of its value against US dollar while Vietnam devalued its Dong by 4.8 percent.
The remaining regional currencies recovered sharply, which was helped by economic growth in their respective countries. China moved at a very slow pace as yuan closed at 6.8372 against 6.8533, gaining a quarter of a percentage point. Indian rupee made a fine recovery, gaining 6 percent in 2009 to close at 46.8936.
Sri Lanka's LKR closed at 114.52 versus 115.08 helped by an end to a decade-long bloody conflict between Senhala majority and Tamil minority populations of the South Asian country. Indonesia's IDR was a big gainer to close the year at 16 percent high at 9416.2 against the dollar.
Most of the Asian countries have been able to survive and are on a recovery path, with many nations enjoying the fruits of their plantation. Unfortunately, however, Pakistan is suffering due to domestic unrest, political disputes and in the absence of a much needed stimulus package.
If we talk in terms of Real Effective Exchange Rate (REER), which is the weighted average of a currency's relative to an index or basket of other major currencies adjusted for the effects of inflation, and the weights are determined by comparing the relative trade balances, in terms of country's currency, with each other country within the index, Pakistan's export did not benefit from a weak rupee, which lost 6.5 percent against the US dollar in 2009.
For example, Philippines, Thailand and Vietnam are our major rice competitors in Asia, whereas Philippines' peso gained 3.1 percent, Thai baht was stronger by 4.5 percent. Although Vietnam Dong shed 4.9 percent, in terms of REER, Pak rupee had the edge over all three currencies as being the cheaper currency.
Since Pakistan has a bigger rice crop this year, the country should take price advantage. Rice price has risen by 21 percent in the past six months. Due to a severe draught, India could be the net buyer of rice and reports from the Philippines are that due to storm the country lost 1.3 million tons of crop. Future prices also suggest an upward trend in prices, so Pakistan should be able to cash in on the thrown up by the international price hike. Pakistan should take advantage of a weak rupee and maximise the opportunity, as the country badly needs to increase its export growth.
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