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PAKISTAN’S economic debate is trapped in outdated vocabulary. Each time the rupee weakens, headlines scream ‘devaluation’. Anchors ask whether one is imminent, while policymakers debate whether the exchange rate should be defended or strengthened. as if it was simply another policy tool. It’s not. The language belongs to another era. Today, most countries let their currencies move more freely. When an economy gets dangerously out of balance, the currency has to adjust to avoid a more disruptive crisis, as our own history has shown.
The exchange rate is not an administrative decision. It is the market price of one country’s currency in terms of another. This price is shaped by domestic inflation relative to that of the country’ trading partners and the accompanying interest-rate differentials, productivity, government spending more than it earns, external balances, capital flows, adequacy of foreign currency reserves and, above all, expectations of what businesses think will happen to the economy in the future. The rupee doesn’t get weaker because policymakers decide to weaken it. It weakens because the country’s economic choices make the current rate impossible to maintain.
