Thursday December 09, 2021

The falling rupee

October 03, 2021

Background: Between May and September the rupee fell from Rs152-to-a-dollar to Rs173-to-a-dollar. That’s a wholesome Rs21 fall in 123 days. That steep a fall in the rupee's value hasn't happened in the past four decades (since the rupee was delinked in 1982). That’s a 14 percent loss in about 80 business days. Between mid-June and the first week of September, the SBP reportedly injected $1.2 billion into the interbank market in an attempt to stabilise the rupee – but to no avail. The rupee kept on falling.

Import-Export: In July-August our imports increased by 73 percent to $12 billion. That’s a new two-month record in Pakistan’s 74-year financial history. In July-August our exports amounted to a paltry $4.5 billion. That meant a trade deficit of $7.5 billion – another record in our 74-year financial history.

Weaponisation of finance: More than a decade ago, the US Department of Treasury (the equivalent of our Ministry of Finance) teamed up with the Pentagon to undertake financial warfare. Over the past seven years, the role of the US Department of Treasury has evolved – the ‘Evolution of Treasury’s National Security Role’. Jack Lew, the 76th US secretary of treasury from 2013 to 2017, played an important role in this evolution.

Jack Lew's Initiative 1: “Instead of fighting countries militarily, the US can now cripple them financially.” Jack Lew's Initiative 2: “The role of financial tools in advancing US national security.” Jack Lew's Initiative 3: “Opening up a new battlefield for the US, one that enables us to go after those who wish us harm without putting our troops in harm’s way or using lethal force.” Jack Lew's Initiative 4: “Our determination to use all the tools at our disposal to advance our strategic interests.” Jack Lew's Initiative 5: “As we continue to employ – and increasingly rely upon – financial measures to help achieve our core foreign policy and national security goals.”

In 2019, WikiLeaks leaked a document purportedly drafted by the US Army Special Operations Forces Unconventional Warfare. Here’s what the document states: “Like all other instruments of US national power, the use and effects of financial weapons are interrelated and they must be coordinated carefully…...Of particular interest politically are the World Bank (WB), the IMF and the World Trade Organization (WTO).”

A ‘financial attack’ has three distinct characteristics – it is indirect, un-attributable and difficult to detect. Pakistan’s tertiary capital – foreign currency and international debt instruments – is under attack. The goal is to cause a liquidity crisis.

On September 13, Secretary of State Blinken told Congress that the US will be “looking at its relationship with Pakistan… formulate what role Washington would want [Pakistan] to play in the future….” On September 27, 22 Republican senators in the 117th Congress proposed a bill “To require the imposition of sanctions with respect to the Taliban and persons assisting the Taliban….” The ‘Government of Pakistan’ has been mentioned three times. This is lawfare in-tandem with financial warfare.

Pakistan’s armed forces routinely assess their vulnerabilities – and then work on developing counter-measures. We need to ask three questions. Question number 1: Have we ever formally assessed our non-military vulnerabilities? Question number 2: Have we ever mapped our financial fault-lines? Question number 3: Have we ever mapped our critical financial functions? Remember, the falling rupee is a symptom – not the disease.

The writer is a columnist based in Islamabad.

Email: Twitter: @saleemfarrukh