What is the Pakistani rupee worth?

Above is a quick chart for you showing the value of the Pakistani rupee versus Sterling from December 2012 to the 21st of February 2013.

On the 19th of December 2012 £1 bought Rs. 159.11, while on the 2y 1st of February £1 bought only Rs 149.72. So over a period of a couple of months, the Pakistani Rupee has gained 6% against Sterling.

Wow! Something must really have changed in the Pakistani economy over the past couple of months to justify the Rupees rise? Right? Well not really, actually not at all. The fall in the value of Sterling has more to do with expectations of the UK loosing its AAA rating, improvements in the outlook of the Eurozone and the US, and the appointment of Mark Carney as the new Governor of the Bank of England, who has suggested that rather than inflation targeting, the UK should switch to targeting nominal GDP. In short, while the "market" spent the last year or so focusing on the troubles in the Eurozone, they are now looking to the UK and realised that Sterling is overvalued.

So why do I bring this up?

Perhaps one of the most frustrating and irritating line of economic argument one may come across is how the fall in the value of the Rupee against the US dollar is somehow a barometer for economic success/failure.Social media is littered with lists highlighting how in Musharaf's time $1 was "only" Rs. 60. So what was so amazing about a dollar for 60 rupees? And why does the dollar hitting a hundred to so much panic?

Now, this is not to excuse the shortcomings of economic policy-makers that have allowed for vast fluctuations in the exchange rate. The fall in the value of the dollar in some respects is self inflicted  but also, the relative strength of the US dollar is also influenced by what is going on in the US itself and the wider global economy.

But the issue for me is the desirability argument. Why are we so obsessed with the value of the dollar as a benchmark for economic success?

This is just like pointing to the Karachi Stock Exchange and claiming that the rising index is big thumbs up for the Pakistani economy and policy makers.

Perhaps one of the most ridiculous statements regarding the value of the Pakistani rupee that I cam across recently was in the "I dream of a day, Pakistan"video when one of the dreams were that "I dream of a day when a Pakistani rupee equals a hundred dollars".

Well, I am sure that the affluent consumerist middle class would be very happy with such an exchange rate as the relative price of imports plummets, an overvalued exchange rate would make Pakistani exporters uncompetitive.

And this is exactly the point: Regardless of which way the Pakistani rupee moves, there will always be winners and losers. The falling rupee has allowed Pakistani exporters to remain competitive and blunt some of the effects of higher costs of running businesses in Pakistan in the face of power cuts, infrastructure shortages and perhaps most importantly terrorism and violence.

The other side of the coin is that a falling rupee makes imports more expensive. More rupees are required to purchase goods and services from abroad, and makes our foreign debt more expensive in rupee terms. As we import a large chunk of our energy such a crude oil from abroad, a falling rupee adds to inflationary pressure in the shape of higher import prices.

Now the fact that we have a wide gap between our exports and imports of goods and services, which is plugged mostly by remittances has more to do with imbalances within our economy and poor policy making.

However, with so much emphasis on the value of the rupee, looking back 5 or 10 years and dreaming about an ever appreciating currency allows both politicians and policy makers to ignore underlying problems and then declare success or failure based on whether the rupee has gained or lost value.

Japan most notably, after the election of their new Prime Minister Shinzo Abe, has nudged the Bank of Japan to loosen its inflation target and become more aggressive when it comes to monetary policy. The Yen has lost 16% of its value since he took office. The incoming Governor of the Bank of England has also suggested that Sterling needs to loose even more value to rebalance the economy.

The point here is that national pride should not be invested in the value of the Rupee itself. It makes for great headlines, talking points and rhetoric, but our obsession with the value of the Pakistani rupee only helps us to cover up our failure to deal with our economy as a whole.

Given the massive trade deficit, many would argue that the Pakistani rupee needs to loose even more value. And it probably will in the coming months.

Rs. 120 to $1? That's just the price at a particular time of the day for a currency. Treat it as such.

Rs. 60 to $1 was no magical benchmark that we should aspire towards, just because it neatly fits into the anti-incumbency narrative that we are encouraged to jump on.