Effects of Currency Fluctuation on Economy

Effects of Currency Fluctuation on Economy

Currency fluctuations are driven by changes in demand and supply for a currency in the foreign exchange market. The terms currency appreciation and currency depreciation describe the movements of the exchange rate induced by market fluctuations. The market where the commodity traded is Currencies. Price of each currency is determined in term of other currencies.

Currency Fluctuation
Effects of Currency Fluctuation on Economy

The Pakistani currency is more volatile currency that creates direct and indirect effects on the foreign exchange and at the same time on the economy as well. The currency volatility can be seen from these figures, Pakistani rupee averaged 62.08 from 1988 until 2014, reaching an all times high of 108.50 in December of 2013 and a record low of 18.60 in December of 1988. But now the Pakistani rupee is appreciated and it should be 99.65, it is positive change but its effects can’t be seen in our economy. Whether rupee appreciates or depreciates it cannot change the economic conditions and in each situation Pakistani economy suffers a lot for many decades. The unanticipated appreciation and depreciation in the currency can benefits only big giants and policy makers.

On the other hand a common man endures a lot of when the Pakistani currency is depreciated and can’t get any benefit of currency appreciation. Everybody is feeling good because now a day’s our currency going to appreciate but it’s really a myth for me either it is beneficial or not. After observing the entire situation, when a country’s currency appreciates than its exports decrease because of exports prices are high and imports increase due to cheaper prices and pay fewer rupees for foreign goods and services. Butitsonly benefits to big giant or governing bodies becausewhen they want to import more foreign goods than appreciates rupee against US dollar and vice versa. Finally, currency appreciation lowers down the inflation because the cost of imported goods and raw materials fall after currency appreciation.

But the reality is quite different because there is no sign in our economy that inflation is reduced 13% to single digit. Economic conditions get worst day by day, unemployment increased and prices are uncontrollable than how can currency appreciation creates positive effects on economy. If currency appreciation reduced the inflationary effects than why prices of consumer goods are increased day by day. Even though every budget shows that our currency is stable now and inflation is reduced 13% to single digit, improving energy crisis and protecting poor’s, itis just documentary debate nothing else. All the issues are increased with the passage of time without any solution because there is the lack of policy implementation.

The solution of these problems is, to control the currency fluctuations and attract foreign investments. Foreign investors invest in Pakistan to get competitive advantage and market considerations.  As a resultemployment opportunitiesare increased and an economy gets stronger and gives people more leverage and better living standard. The foreign investmentwill be increased by adopting the attributes of ideal currency these attributes are the “exchange rate stability” the currency value is fixed against major currencies so the investors are certain to invest in a particular currency.”Full financial integration” investors can easily move funds from one currency to another due to perceived economic opportunities and risks.”

Monetary independence” involves domestic monetary and interest rate policies would be set by each individual country to limiting inflation, combating recessions and fostering prosperity and full employment. Many experts force that the increased capital mobility has been pushing more and more countries towards full financial integration and invests in foreign countries.In this way currency appreciation can positively affected on economyand at the same time increased employment opportunities, reduced commodity prices and improves the living standard of common man. In this way economy gets stronger and country gets prosperous ahead of successful destination.