Dual Currency System, An Idea to Devolve the Import Current Account Problem of Pakistan

[Wood]

I'm proposing a foreign currency be used for foreign imports and resulting foreign import value.

If you cannot distinguish the difference then you do not grasp what I am proposing.

The reason why Lebanon and Sri Lanka failed and the way Pakistan would fail if the international players would let it fail is due to using a domestic non-reserve currency to pay for the import of foreign goods which leads to running out of foreign currency as you are essentially running a crude fractional reserve system of foreign currency.

What I am proposing is a 100% reserve system of foreign currency with an effective psychological regulatory system.

I understand what you mean. It will evaporate the demand for goods in the market and put everyone out of a job. Pakistani per capita productivity will nose dive and the country will descend into civil war.

 

[Communism]

I understand what you mean. It will evaporate the demand for goods in the market and put everyone out of a job. Pakistani per capita productivity will nose dive and the country will descend into civil war.

It would heavily incentivize export industries while heavily disincentivizing non-productive parts of the economy, like urban residential ponzi schemes and the like.

Fake gdp and fake productivity going down is a good thing, not a bad thing.

Getting import inflation out of the GDP calculation would do wonders for economic signaling.

 

[Wood]

It would heavily incentivize export industries while heavily disincentivizing non-productive parts of the economy, like urban residential ponzi schemes and the like.

Fake gdp and fake productivity going down is a good thing, not a bad thing.

Getting import inflation out of the GDP calculation would do wonders for economic signaling.

What can Pakistan produce that has demand without imports? You will see how the increase in fuel prices contracts economic growth now. Paying in dollars will have a more drastic effect.

 

[Communism]

What can Pakistan produce that has demand without imports? You will see how the increase in fuel prices contracts economic growth now. Paying in dollars will have a more drastic effect.

Remittances, IT exports and Agriculture.

Some manufacturing exports.

The easiest/most advantageous is to increase agricultural efficiency.

Pakistan's agricultural efficiency is very poor.

A slowdown in demand for natural gas would make fertilizer production much cheaper, since Pakistan has a long term sweetheart deal with Qatar for extremely cheap LNG, but has to buy anything extra at market prices.

Pakistan’s Top Exports 2023

Key metrics about Pakistan’s top exports in 2023 best exports customers plus a searchable database of 100 most valuable Pakistani export products

www.worldstopexports.com

 

[Abdul Rehman Majeed]

I propose that Pakistan change to a Dual Currency system, where individuals must procure their own USD to pay for USD imports, and then can only sell the portion of USD imports to the next person in USD for the portion of USD they paid for the import, all the way down the line.

Say that you want to buy gasoline from a fuel station.

The importer of the crude oil would need to pay for the import in USD, and then charge USD for the portion of the import component of the finished product to every intermediary at every step of the way down to the consumer level.

The importer of finished gasoline and diesel would do the same thing, but the import component would be larger, which would mean that the intermediary steps would also have to transact a larger portion of the value of the transaction in USD.

This kind of system effectively devolves the job of maintaining a current account and foreign currency reserves from the government level to the individual level, which is necessary as the Pakistani government has shown zero capability of doing it properly at the governmental level, and shows zero signs of being capable of doing it in the future either.

This would also discourage import inflation disguised as growth, as the accounting metric for the imports would be in the USD instead of directly government manipulated currencies.

Best way to send money is through Hawala. You get much better rates and send money fast.

 

[AZADPAKISTAN2009]

If we can't manage 1 currency what chance we have to mange 2

Same Analogy as having 1 wife or 2

 

[Communism]

If we can't manage 1 currency what chance we have to mange 2

Same Analogy as having 1 wife or 2

The whole point is that with this system, the imports problem is managed semi-automatically.

As in, even if the government totally fails at managing the domestic value portion of goods, it won't make the country internationally bankrupt.

 

[Wood]

Remittances, IT exports and Agriculture.

Some manufacturing exports.

The easiest/most advantageous is to increase agricultural efficiency.

Pakistan's agricultural efficiency is very poor.

A slowdown in demand for natural gas would make fertilizer production much cheaper, since Pakistan has a long term sweetheart deal with Qatar for extremely cheap LNG, but has to buy anything extra at market prices.

Pakistan’s Top Exports 2023

Key metrics about Pakistan’s top exports in 2023 best exports customers plus a searchable database of 100 most valuable Pakistani export products

www.worldstopexports.com

Remittances are already at an all time high thanks to devaluation of PKR. How can it improve further?

Majority of Pakistani labor is not skilled enough for tech work. Agriculture requires resources that Pakistan does not easily have. It is already in fu throttle and there is almost no demand for agriculture produce. Rich countries subsidize their agriculture and make it more productive than Pakistan can possibly compete with. So what other industries can Pakistan have which does not need imports?

Irony is that your suggestion will raise the income inequality in the society

 

[Communism]

Remittances are already at an all time high thanks to devaluation of PKR. How can it improve further?

Majority of Pakistani labor is not skilled enough for tech work. Agriculture requires resources that Pakistan does not easily have. It is already in fu throttle and there is almost no demand for agriculture produce. Rich countries subsidize their agriculture and make it more productive than Pakistan can possibly compete with. So what other industries can Pakistan have which does not need imports?

Irony is that your suggestion will raise the income inequality in the society

You are missing the major benefit of deflating non-productive sectors and redirecting capital to more productive sectors.

This includes the USD portion of that investment.

You are also forgetting that Pakistan is a tropical/subtropical climate.

This means Pakistan is not primarily competing with developed countries with it's agricultural output, which is why it is so advantageous and easy to improve productivity with consequent export success.

One must develop before socializing if the government is incapable of doing it structurally itself.

Currently, a huge portion of investment and remittances are invested in less-productive and non-productive portions of the economy.

This proposed system would systematically dictate that that investment and remittances be reallocated to more productive portions of the economy.

Majority of the population doesn't need to be involved in IT exports.

IT exports are very valuable, so it only requires a small portion of Pakistan's enormous population to be highly profitable in exports.

 

[Wood]

You are missing the major benefit of deflating non-productive sectors and redirecting capital to more productive sectors.

This includes the USD portion of that investment.

You are also forgetting that Pakistan is a tropical/subtropical climate.

This means Pakistan is not primarily competing with developed countries with it's agricultural output, which is why it is so advantageous and easy to improve productivity with consequent export success.

One must develop before socializing if the government is incapable of doing it structurally itself.

Currently, a huge portion of investment and remittances are invested in less-productive and non-productive portions of the economy.

This proposed system would systematically dictate that that investment and remittances be reallocated to more productive portions of the economy.

Majority of the population doesn't need to be involved in IT exports.

IT exports are very valuable, so it only requires a small portion of Pakistan's enormous population to be highly profitable in exports.

How will remittance automatically route to more productive sectors? Who is to say what is more productive sector and what is not? Where will the labor get trained for IT? Only a small fraction of the society can work in tech.

Tropical climate cannot on its own give more agricultural productivity for export. Pakistan has a lot of mouths to feed. Even a country like Canada can produce a lot for agricultural export thanks to abundance of cultivable land and fewer mouths to feed.

 

[Communism]

How will remittance automatically route to more productive sectors? Who is to say what is more productive sector and what is not? Where will the labor get trained for IT? Only a small fraction of the society can work in tech.

Tropical climate cannot on its own give more agricultural productivity for export. Pakistan has a lot of mouths to feed. Even a country like Canada can produce a lot for agricultural export thanks to abundance of cultivable land and fewer mouths to feed.

Currently, the reason why extremely non-productive sectors keep getting financing and investment is because of the ability to print USD with PKR.

Without the ability to print USD with PKR, then those non-productive investments will no longer reliably earn the investors USD denominated returns.

This will lead to deflation of the prices of those non-productive industries and products.

That demand destruction would lead to the investment automatically being redirected to the industries and sectors that can produce export profits.

The reason why Tropical climate is an extreme advantage is tropical climate is both the best agricultural environment in general, and also that the subsidized developed market agriculture simply does not have much acreage in tropical/subtropical climates, and therefore the prices of products that are specific to tropical/subtropical climates are indeed not depressed by the agricultural production coming out of developed markets with subsidized agriculture.

The solution to lots of unproductive mouths to feed is simply to reduce reproductive rate to the rate that pakistan can afford to educate the population.

In other words, reduce reproductive rate to the point where pakistan can afford to get literacy rate to 90-95%.

Literacy Rate In Pakistan 2023 Province Wise For Male And Female

Get the Latest Information About Literacy Rate In Pakistan 2023 Province Wise For Male And Female For Punjab, KPK, Sindh, and Balochistan

ilm.com.pk

 

[jhungary]

How will remittance automatically route to more productive sectors? Who is to say what is more productive sector and what is not? Where will the labor get trained for IT? Only a small fraction of the society can work in tech.

Tropical climate cannot on its own give more agricultural productivity for export. Pakistan has a lot of mouths to feed. Even a country like Canada can produce a lot for agricultural export thanks to abundance of cultivable land and fewer mouths to feed.

The man didn't even know even if you use USD to deal with import, that does not shrink the demand of your own currency, because import/export and domestic market goes hand in hand. You buy crude oil with USD but you pay the people who process them in Pakistan with Pakistan Rupee, and everything from the gas station attendant to the car mechanic that have no connection to the import of crude oil would not be dealing with USD, because if so, every economic activities would be paying in USD.......

On the other hand, how much USD you can get your hand on? Remittances is not going to be enough to cover majority economic event. And what about those people who don't have relative in US? You only earn USD (if they are willing to pay it on the other hand) if you have the first "Starter" money to make goods and trade. So if they don't have the money to make goods, how are they going to do import/export? All those issue is going to hit Pakistani economy harder than the devaluation of their own currency.

 

[Communism]

The man didn't even know even if you use USD to deal with import, that does not shrink the demand of your own currency, because import/export and domestic market goes hand in hand. You buy crude oil with USD but you pay the people who process them in Pakistan with Pakistan Rupee, and everything from the gas station attendant to the car mechanic that have no connection to the import of crude oil would not be dealing with USD, because if so, every economic activities would be paying in USD.......

On the other hand, how much USD you can get your hand on? Remittances is not going to be enough to cover majority economic event. And what about those people who don't have relative in US? You only earn USD (if they are willing to pay it on the other hand) if you have the first "Starter" money to make goods and trade. So if they don't have the money to make goods, how are they going to do import/export? All those issue is going to hit Pakistani economy harder than the devaluation of their own currency.

It's this thing called savings (capital) and economic circulation of capital.

The system I am proposing would psychologically lead to a certain level of "hording" of USD which would serve as a de facto national foreign reserve, as that's what people do psychologically when faced with such circumstances.

The economic circulation of capital would take care of the rest.

What you are saying would be the case in a well managed current account, but pakistan does not and has never had a well managed current account, so it's not really an option.

One has to get acquainted with the idea of fictitious capital, fictitious wealth, and fictitious investments.

Pakistan's current economic model is full of all three of those things and the destruction of a portion of those things is a good thing, not a bad thing.

 

[jhungary]

It's this thing called savings (capital) and economic circulation of capital.

The system I am proposing would psychologically lead to a certain level of "hording" of USD which would serve as a de facto national foreign reserve, as that's what people do psychologically when faced with such circumstances.

The economic circulation of capital would take care of the rest.

What you are saying would be the case in a well managed current account, but pakistan does not and has never had a well managed current account, so it's not really an option.

One has to get acquainted with the idea of fictitious capital, fictitious wealth, and fictitious investments.

Pakistan's current economic model is full of all three of those things and the destruction of a portion of those things is a good thing, not a bad thing.

You do know economic circulation is nothing but a circle jerk.

How you can start that economic circulation going? To do that, you must have the initial sum of USD to be able to start. Then you will bleed USD in every little inch of economic activities, which would result in imbalance of equity and you will need influx of USD to get that circulation going.

Use your own example. Buying Crude Oil, you don't just buy and use crude oil as in you put that crude oil in your gas pump. Meaning the "Spending of USD" will not stop after you purchase the crude with USD, you need to process it, turn it into economic activities and able to resell those economic activities. All those activities you either use USD to try and "maintain" the circulation, then you bleed it out with every transaction that change hand, or you use Rupee which will increase the demand of your own currency, the only different being you won't be able to back it with USD or any Forex because you are also using USD direct.......

 

[Communism]

You do know economic circulation is nothing but a circle jerk.

How you can start that economic circulation going? To do that, you must have the initial sum of USD to be able to start. Then you will bleed USD in every little inch of economic activities, which would result in imbalance of equity and you will need influx of USD to get that circulation going.

Use your own example. Buying Crude Oil, you don't just buy and use crude oil as in you put that crude oil in your gas pump. Meaning the "Spending of USD" will not stop after you purchase the crude with USD, you need to process it, turn it into economic activities and able to resell those economic activities. All those activities you either use USD to try and "maintain" the circulation, then you bleed it out with every transaction that change hand, or you use Rupee which will increase the demand of your own currency, the only different being you won't be able to back it with USD or any Forex because you are also using USD direct.......

Literally everyone on this thread seems to not understand my proposed dual currency system.

Re-read my posts about how it works.

You are pretending that it's a simple peg or a currency board system.

It is neither of those things.

I propose that Pakistan change to a Dual Currency system, where individuals must procure their own USD to pay for USD imports, and then can only sell the portion of USD imports to the next person in USD for the portion of USD they paid for the import, all the way down the line.

Say that you want to buy gasoline from a fuel station.

The importer of the crude oil would need to pay for the import in USD, and then charge USD for the portion of the import component of the finished product to every intermediary at every step of the way down to the consumer level.

The importer of finished gasoline and diesel would do the same thing, but the import component would be larger, which would mean that the intermediary steps would also have to transact a larger portion of the value of the transaction in USD.

This kind of system effectively devolves the job of maintaining a current account and foreign currency reserves from the government level to the individual level, which is necessary as the Pakistani government has shown zero capability of doing it properly at the governmental level, and shows zero signs of being capable of doing it in the future either.

This would also discourage import inflation disguised as growth, as the accounting metric for the imports would be in the USD instead of directly government manipulated currencies.

You are thinking of countries that implemented a simple peg or a currency board system.

The system I am proposing is strictly to be used on the specific import value of goods.

It solves the problem of a simple peg or currency board system by specifically subdividing the use of USD to import value of goods.

This system would still allow the government to do whatever they want with the domestic value portion of the goods.

I'm proposing a foreign currency be used for foreign imports and resulting foreign import value.

If you cannot distinguish the difference then you do not grasp what I am proposing.

The reason why Lebanon and Sri Lanka failed and the way Pakistan would fail if the international players would let it fail is due to using a domestic non-reserve currency to pay for the import of foreign goods which leads to running out of foreign currency as you are essentially running a crude fractional reserve system of foreign currency.

What I am proposing is a 100% reserve system of foreign currency with an effective psychological regulatory system.

It is a direct bifurcation of import value of goods and domestic value of goods.

An example, a 120 dollar "barrel" of oil is imported, then processed to add value.

You would then have a USD value of goods and a Domestic value of goods.

The next intermediary/final buyer would pay USD for the USD value of goods portion and PKR for the Domestic value of goods.

It doesn't have to be 100% perfect either, as the government will also still be taxing the USD portion of goods, and that tax will still be held at the real national current account.

That taxed amount would have the government be able to make the choice to either recirculate it into the economy directly by selling it for PKR, or the government can use it to pay off foreign currency debts or make foreign currency purchases.

Then the demand function on USD (or whatever foreign currency you want to use as the foreign component of this system) would put demand on investment in export industries to produce a probabilistic income stream in USD (or whatever foreign currency you want to use as the foreign component of this system)

Your assumptions you are making are assuming that the current Pakistani system is well designed and allocating capital efficiently to start with.

That is not the case.

And therefore the capital is there to be reallocated already, even without extra capital to start with.

It simply requires the natural deflation of non-productive and less productive sectors and investments, aka urban residential ponzi schemes, vanity projects, feudal rent seeking, etc, as those activities would not return a positive (or at least a very positive) probabilistic return on the amount of USD spent in them.