Our business community is currently facing considerable pressure as the US dollar has climbed to Rs131 in the open market. This horrific devaluation of the rupee is producing a negative impact on our national economy and foreign debt.
According to currency dealers, the sudden rise in the dollar price has also directly increased its demand. A large number of people are now purchasing dollars on a massive scale. There are also reports of a dollar shortage in the open market. However, economic experts have expressed concern over the new wave of inflation that could result in more economic difficulties for Pakistan.
The country is heavily dependent on various imports, such as food products, oil and petroleum, machinery, and electronic items. Ironically, the export ratio is comparatively low. The sudden decrease in the value of the rupee has not only increased the prices of imported products, but it has also multiplied our debts.
To understand the current crisis, there is a pressing need to analyse historical facts. In the past, we were exploited when British introduced paper currency. For nearly 1,800 years, India was among the most prosperous country. The rupee has been the currency used in the Subcontinent since time immemorial. The word ‘rupee’ is derived from the Sanskrit word ‘rupa’, which means silver coin. The ancient philosopher Chanakya also referred to silver coins as ‘rupya rupa’ in his book ‘Arthashastra’.
The US dollar was once a silver coin that was designed along the lines of the Spanish dollar. Today, the dollar is used as a currency by more than 20 currencies across the world. The US dollar is also the official currency of East Timor, Ecuador, Micronesia, El Salvador, the Marshall Islands, Panama, Palau, and the Caribbean Netherlands.
By the end of the 19th century, gold was just 15 times more expensive than silver. However, the discovery of numerous silver mines throughout the US resulted in the devaluation of silver. Today, gold is as much as 70 times more expensive than silver. This situation enabled the US government to enforce the gold standard in 1900. This is a monetary system in which the standard economic unit is based on a fixed amount of gold. Moreover, the gold standard guarantees that a currency is a government substitute for money.
During this period, the Subcontinent was under the tight control of the British. In order to transfer gold to England, the silver standard was introduced in British India. Paper currency was initiated by imperialists so as to enable them to not pay back in solid form. After the War of Independence in 1857, the British declared the rupee as the official currency of colonial India. The former royal coins were gradually disowned and paper notes that were issued by the British were circulated across the country. In order to capture a maximum amount of gold, the British government also established postal saving banks at post offices, which offered attractive interest rates. The government accepted gold from the people but wasn’t bound to provide any in return.
To further manipulate trade with India, the British government also launched council bills that were, in fact, a form of bank draft with variable values. Henry Dunning Macleod, a renowned economist, explained the council bills in the following words: “The more India council bills are sold, the more the diminution in the value of silver is increased… and as the council must sell a sufficient quantity to produce the required amount in gold… a still larger amount must be sold to make up for their diminished value…and consequently the heavier is the taxation on the people of India to meet the deficiency”.
After Independence, Pakistan had no choice but to utilise paper currency notes issued by the Reserve Bank of India. The bank was established in April 1935 to control the monetary policy of the rupee. At the time of Independence, $1 was equivalent to around Rs3. It is, therefore, quite alarming that the US dollar is expected to cross Rs131. Meanwhile, the Indian rupee is in a comparatively better position – $1 is currently equivalent to around INR 67. While there is a race on the global level to increase gold reserves, Pakistan is facing international pressure to devalue the national currency to increase foreign reserves.
China is also aggressively increasing gold reserves to reduce our dependence on the dollar. Similarly, the popularity of cryptocurrencies like bitcoin indicates that the internet community wants to get rid of dollars.
It will be a serious challenge for our new government to explore suitable alternatives on a priority basis to overcome the rupee crisis in the best interest of our country.
The writer is patron-in-chief of thePakistan Hindu Council.