Foreign Exchage Reserve of Pakistan free essay sample

The reserve assets can be categorized as gold reserve, Unallocated gold reserve, Special drawing rights, currency, Reserve position in the IMF, other transferable deposits, other deposits, debt securities, loans, investments, fund shares and financial derivatives. The quantity of foreign exchange reserves can change the central bank monetary policy but this dynamics is analyzed in the context of the exchange rate . If central bank implements a fixed exchange rate then supply and demand would tend to push the value of the currency lower or higher e. g. n increase in demand for the currency would increase the value and decrease lower and thus the central bank use reserves to maintain its fixed exchange rate. EXCHANGE RATE The rate which one currency will be exchanged for another. Exchange rate affects the foreign exchange reserves and it is adjusted according to the market demand. With the help of exchange rate local currency is adjusted so that it does not create inflation or deflati on in the country. FACTORS AFFECTING FOREIGN EXCHANGE RESERVES FROM 1980 TO 2010 In 1980 there was high foreign exchange reserve. Both exports earnings and home remittances increase beyond the expectations. IMF provides extent fund facility arrangements. In 1981 due to world recession there was crash in the demand, the appreciation of US dollar and slowdown in the home remittances. Exports were reduced due to dollar appreciation there was increase in foreign exchange reserve. In 1982 there were unfavorable conditions but some improvements occurred in economy. Despite the low international trade , exports proceeds are likely to increase because Pakistani rupee was delinked from US dollar. Due to import substitution policy production increases workers remittances increased by 28. 1% all these factors boost the foreign exchange reserve. In 1983, the trade deficit is increased to $3246 million it brings change in exchange rate and currency is depreciated from Rs=9. 90=1$, workers remittances were also low in this period thus low foreign exchange reserve. In 1984 trade deficit was increasing the gap of exchange receipts and expenditures were filled by foreign exchange reserve. After 2 difficult years Pakistan financial position improved in 1985 exports increased by 18. %, workers remittances by 5% while imports fell. With a 24% increase in loans a modest accumulation of external reserves took place. 1n 1887 our current account balance is in deficit and fulfilled by external borrowings. Fund credits and net transactions in the foreign currency accounts deficits with banks also bring change in foreign exchange reserve. In 1988 foreign exchange reserve are started at low lev el which was $875 million. During 1989 home remittances increased by 5 % and thus give positive contribution in improving the payments positions and foreign exchange reserves. Total commitments of foreign loans and grants are estimated to increase by 31%. In 1990 foreign exchange reserves are building up of $271. To cope with the critical reserve positions prime minister announced a number of measures to reform the exchange control and payments system. 1991 at this time foreign exchange reserve reached to a bare minimum then to cope this government made changes in exchange rate, payments systems and these measures shows result and foreign exchange reserve position improved. 1992 heavy rains, flood, attack to leaf curl virus disease on cotton crops, international recessions will give fall in prices. Cash foreign exchange reserve decrease by 5. 77% amounted to $ 602. 8 million. 1993 following measures are taken which results improvements in foreign exchange reserve amounted 12. 1 billion. Control on budgetary deficit, minimizing expenditure, accretion in foreign currency deposits, improvement of aid environments and larger foreign inflow makes foreign exchange reserves. 1995 workers remittances increase from negative to 29. 1%. Fall in commodity aid exports decline, imports coupled higher and devaluation of Pakistan rupee by 7% against US dollar. The position of foreign exchange reserve remained comfortable in this period. While in 1996 workers remittances projected at $1575 million against $1461 million. Quota management policy was announced and tariff rates were reduced from 45% to 65% foreign exchange reserve declined in this year. 1997 there was a marked fluctuations in foreign exchange reserve and it is declined of about 41%. 1998 it was period of deep recessions, slow global economic activity and collapse of international commodity prices exhibited more adverse effects. There was low foreign exchange reserve. 999 in this time government maintain a stable foreign exchange rate despite the countrys balance of payments situation remained under pressure. 2000 in this era foreign exchange reserve after fluctuations set at $1123 million. Pakistan declined in unit values of major exports items. 2001 the tragic event of sep 11 made major growth into recessions. 2002 foreign reserves crossed $10 billion 1st time in history . 200 3 foreign reserves stood at $12. 505 billion made impressive build up and now economy could bare any abnormal shock. 2004-05 foreign reserves are maintained at high 13000. m many factors contributed in this are private transfers, remittances, increased proceeds floatation of bonds and higher foreign direct investment. 2006 foreign exchange reserves crossed 14 billion and it is due to private transfers. 2007 there were less foreign exchange reserves as compared to previous year. 2008 there was high depletion in foreign exchange reserve. 2009 improvements are made so that stability came in exchange rate and foreign currency deposits increases. 2010 rising trend in reserves reached 17. 1 billion this was due to emergency natural disaster assistance. This is was the history of foreign reserves.