Pakistan's Central Bank could swing an election

Despite their next election being a year away, Pakistan is facing one of the few controversies the United States has avoided in recent memory: Central Bank driven fiscal policy that could be politically motivated.

Could being the operative word; this is 1) politics and 2) in another country so for the 99% of us who are not high information voters in Pakistani elections, let's at least consider the other side.

While it's no secret that the Pakistani Rupee is, even for the region, disproportionately overvalued in an effort to boost the emerging economy's exports, how long and to what extent is becoming questionable.

Per Bloomberg:
“Its artificial, I don’t think there is any stability, there is an enforced stability,” said Muzaffar Ali Isani, an economics professor at Iqra University in Karachi. “You have to keep in mind there is an election next year. At least to the run up of the election” they will try and keep it unchanged, he said.

Pakistan emerged from the edge of a debt crisis in 2013, staved off when the then newly elected government of Prime Minister Nawaz Sharif submitted to the $6.6 billion International Monetary Fund loan program, which ended in September. The IMF said last year that Pakistan’s currency is overvalued as much as 20 percent.

Fortunately this has yet to occur in the United States in recent memory.

If it did, it would almost certainly send the dollar into a tailspin and while the wine and European furniture markets would boom, the service based new economy would feel it particularly hard: Foreign investment would dwindle while the value of any overseas assets or revenues would fall in correspondence with the value of USD.

You never know considering the mercurial nature of the administration, but at least for now, Janet Yellen appears to be on POTUS's good side.

"You know, I like her, I respect her. She's been here [in the Oval Office.] She's been in that seat. I do like the low interest rate policy." Trump told the Wall Street Journal in April.

Going forward, the most obvious potential source of conflict would be if Yellen refuses to cut interest rates in the run up to an election when the administration is looking to pump up the strength of the economy.

It would be inappropriate, unprecedented, and technically legal for a President to knowingly attempt to cause inflation for the appearance of a booming export sector.

Inconceivable, right?


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