Too much rise in its value will make things cheaper inside the country, but make our exports costly, non-competitive.
KARACHI: If people are celebrating the decline of the dollar and are thinking that the finance minister is a genius, they should think again. The answer to why the value of the dollar has fallen lies in a theory postulated years ago by economists Franco Modigliani and Merton Miller. The fact is that the minister is playing games and the truth will soon become evident. You cannot add value by making some cosmetic changes.
As for privatisation, ask Muhammad Zubair. He will value the assets and sell them with no questions asked of him. It seems that selling off our national assets is not the business of the people of Pakistan.
Coming back to the depreciation of the dollar, it must be noted that too much upward movement in the rupee’s value should neither be wished for nor celebrated. Too much rise in its value will make things cheaper inside the country, but make our exports costly and non-competitive and that in turn, will push the rupee down again. To quote Merton Miller: “Everyone recognises that’s a joke because obviously the number and shape of the pieces doesn’t affect the size of the pizza. And similarly, the stocks, bonds, warrants, etc., issued don’t affect the aggregate value of the firm.” And also: “If you take money out of your left pocket and put it in your right pocket, you’re no richer.”
Iqbal Ismail
Published in The Express Tribune, March 15th, 2014.
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