Dual Currency System, An Idea to Devolve the Import Current Account Problem of Pakistan

[jhungary]

Literally everyone on this thread seems to not understand my proposed dual currency system.

Re-read my posts about how it works.

You are pretending that it's a simple peg or a currency board system.

It is neither of those things.

All I see is everyone in the thread are calling you delusional......

It is a direct bifurcation of import value of goods and domestic value of goods.

An example, a 120 dollar "barrel" of oil is imported, then processed to add value.

You would then have a USD value of goods and a Domestic value of goods.

You do know you are out $120 (say you brought 1 barrel) and unless the person you sell to give you $120 back then you are still $120 out of pocket, and where does that person you sell to get that $120 from? And then you protracted it to everyone dealing business with that barrel of oil you brought, all of them have to come up with $120 to keep that "circulation" going, are they all have family in US that can send them $120 to cover that value? Or somehow the value magically appear at the end user? Because Pakistan does not print USD, it have to come from somewhere, somehow.

The next intermediary/final buyer would pay USD for the USD value of goods portion and PKR for the Domestic value of goods.

Where does that exchange come from? If you do, then you instantly lost $120 because you will gain whatever amount of PKR back, how are you going to balance your account?

It doesn't have to be 100% perfect either, as the government will also still be taxing the USD portion of goods, and that tax will still be held at the real national current account.

That taxed amount would have the government be able to make the choice to either recirculate it into the economy directly by selling it for PKR, or the government can use it to pay off foreign currency debts or make foreign currency purchases.

Then the demand function on USD (or whatever foreign currency you want to use as the foreign component of this system) would put demand on investment in export industries to produce a probabilistic income stream in USD (or whatever foreign currency you want to use as the foreign component of this system)

The problem is, the government is NOT going to pay each and every one of you back the money they taxed, it will be going to build school, roads and into the politician pocket. which mean for you, you still need to come up with the USD you need to do business on.

On the other hand, if that demand of USD spike, it will also spike the demand of PKR because you are using them in the same market - Pakistan, if you make them interchangeable, which you will need to if you want to use them on the same market, then when one demand goes up, the other will automatically go up.

 

[Communism]

All I see is everyone in the thread are calling you delusional......



You do know you are out $120 (say you brought 1 barrel) and unless the person you sell to give you $120 back then you are still $120 out of pocket, and where does that person you sell to get that $120 from? And then you protracted it to everyone dealing business with that barrel of oil you brought, all of them have to come up with $120 to keep that "circulation" going, are they all have family in US that can send them $120 to cover that value? Or somehow the value magically appear at the end user? Because Pakistan does not print USD, it have to come from somewhere, somehow.



Where does that exchange come from? If you do, then you instantly lost $120 because you will gain whatever amount of PKR back, how are you going to balance your account?



The problem is, the government is NOT going to pay each and every one of you back the money they taxed, it will be going to build school, roads and into the politician pocket. which mean for you, you still need to come up with the USD you need to do business on.

On the other hand, if that demand of USD spike, it will also spike the demand of PKR because you are using them in the same market - Pakistan, if you make them interchangeable, which you will need to if you want to use them on the same market, then when one demand goes up, the other will automatically go up.

That is exactly the point of the system.

To make sure that the USD portion is the dangling jewel for the masses to strive for.

This is the essence of an export economy.

The way it is set up in my model, if you do not make productive investments in exports, you simply lower the standard of living until you reach equilibrium.

Aka, no longer living beyond your means.

 

[jhungary]

That is exactly the point of the system.

To make sure that the USD portion is the dangling jewel for the masses to strive for.

This is the essence of an export economy.

The way it is set up in my model, if you do not make productive investments in exports, you simply lower the standard of living until you reach equilibrium.

Aka, no longer living beyond your means.

It only work if you can source your own USD.

I am afraid that model will project the opposite, it will deter people to go into business UNLESS they can source their own USD.

On the other hand, you cannot artificially pump up Pakistani Rupee that much, USD have the backing of 8 trillions transaction a day, USD can handle that transaction volume easy, PKR does not have that much in circulation. How do you target the spike in demand? Even if your model did work..

 

[Communism]

It only work if you can source your own USD.

I am afraid that model will project the opposite, it will deter people to go into business UNLESS they can source their own USD.

On the other hand, you cannot artificially pump up Pakistani Rupee that much, USD have the backing of 8 trillions transaction a day, USD can handle that transaction volume easy, PKR does not have that much in circulation. How do you target the spike in demand? Even if your model did work..

My model is assuming that the PKR will be printed by the failure of a government to meet their domestic political obligations, thus creating as much PKR as the economy would ever need.

It is designed based on assuming a failure of a government.

They just won't be able to import more than they can afford.

Since the individuals have the control of the majority of the "current account", then the government will have a very hard time trying to claw that USD from those oligarchs.

Basically this system uses the "USD Oligarchs" as the counterbalance to government being capable of running a current account deficit of any significant amount.

 

[jhungary]

My model is assuming that the PKR will be printed by the failure of a government to meet their domestic political obligations, thus creating as much PKR as the economy would ever need.

It is designed based on assuming a failure of a government.

They just won't be able to import more than they can afford.

If that is so, 1 of the 2 things will happened.

1.) PKR will be super inflated, to a point it's worthless as a currency
2.) USD will be super deflated, to a point not everyone can afford it

Either way, that basically put PKR out of the entire equation, why not just use USD then and adopt it as official currency? I mean, if I am a importer, I spend my USD, I will still want to enjoy my money, not every single cents I pay is going to my next purchase, if I can't do that, why I do business in the first place?

 

[Communism]

If that is so, 1 of the 2 things will happened.

1.) PKR will be super inflated, to a point it's worthless as a currency
2.) USD will be super deflated, to a point not everyone can afford it

Either way, that basically put PKR out of the entire equation, why not just use USD then and adopt it as official currency? I mean, if I am a importer, I spend my USD, I will still want to enjoy my money, not every single cents I pay is going to my next purchase, if I can't do that, why I do business in the first place?

That is taken care of by buyer/seller game theory.

The buyer wants to spend as little USD as possible, and therefore will defend the system.

The seller wants to get paid as much USD as possible, and therefore will defend the system.

If either buyer or seller gets what they want, aka seller demand full payment in USD, or buyer demand full payment be allowed to be in PKR, then they have to come to a compromise in a market equilibrium, which should come pretty close to the import value vs domestic value in such a system.

 

[jhungary]

That is taken care of by buyer/seller game theory.

The buyer wants to spend as little USD as possible, and therefore will defend the system.

The seller wants to get paid as much USD as possible, and therefore will defend the system.

If either buyer or seller gets what they want, aka seller demand full payment in USD, or buyer demand full payment be allowed to be in PKR, then they have to come to a compromise in a market equilibrium, which should come pretty close to the import value vs domestic value in such a system.

Why would game theory be applied when actual demand is needed and it's the stuff we are talking about??

It's not a rational or irrational thing for you to pay USD and ern PKR, unless you can start spending USD in Pakistan, that is a requirement. Which mean if I want to make profit and carry out the transaction, then I will DEMAND the end buyer to pay PKR......

 

[Communism]

Why would game theory be applied when actual demand is needed and it's the stuff we are talking about??

It's not a rational or irrational thing for you to pay USD and ern PKR, unless you can start spending USD in Pakistan, that is a requirement. Which mean if I want to make profit and carry out the transaction, then I will DEMAND the end buyer to pay PKR......

My model is under the assumption that USD will always be the most preferable, so both sides will always be trying to get the most USD to end with at the end of the transaction, and therefore equilibrium would be roughly at the bounds of import value vs domestic value.

It operates on an assumption that the USD will always be less available in such a system than PKR, as Pakistani government can still print PKR, they just can no longer print USD.

 

[jhungary]

My model is under the assumption that USD will always be the most preferable, so both sides will always be trying to get the most USD to end with at the end of the transaction, and therefore equilibrium would be roughly at the bounds of import value vs domestic value.

It operates on an assumption that the USD will always be less available in such a system than PKR, as Pakistani government can still print PKR, they just can no longer print USD.

Do you realise the highlighted is actually the core of the problem I have been talking about?

Going back to the post before, your model will either make PKR too inflated to a point it no longer function as a currency because everyone is buying them and the demand spike along with USD. Or you will need to make USD-PRK deflate as much as possible. To a point you won't have enough PKR to cover the economy.....

 

[Communism]

Do you realise the highlighted is actually the core of the problem I have been talking about?

Going back to the post before, your model will either make PKR too inflated to a point it no longer function as a currency because everyone is buying them and the demand spike along with USD. Or you will need to make USD-PRK deflate as much as possible. To a point you won't have enough PKR to cover the economy.....

A large part of my model relies on the "USD Oligarchs" that would gain political power due to this system.

They would have every reason to keep the system as it is, as they would only keep their oligarchical niche by keeping it in place.

The same way that urban residential real estate ponzi mafia can keep their system in place despite it being totally nonsensical.

Basically, the entire system is a way to align the corrupt elite to a more productive system than the current one, as that's the way the capitalist systems operate.

You need at bare minimum an elite to enforce any type of capitalist system, sometimes accompanied by an upper and lower middle class that also is beholden to such a system.

 

[jhungary]

A large part of my model relies on the "USD Oligarchs" that would gain political power due to this system.

They would have every reason to keep the system as it is, as they would only keep their oligarchical niche by keeping it in place.

Than that would be as I said, your model only encourage "USD Oligarch" to do business in Pakistan, and it would seriously discourage normal Pakistani to do business in Pakistan...

The other way I can see is for these "USD Oligarch" to share wealth with everyday Pakistani so they have a bite, well, fat chance it would happen....

 

[Communism]

Than that would be as I said, your model only encourage "USD Oligarch" to do business in Pakistan, and it would seriously discourage normal Pakistani to do business in Pakistan...

The other way I can see is for these "USD Oligarch" to share wealth with everyday Pakistani so they have a bite, well, fat chance it would happen....

That's not how capitalism works, lol.

 

[jhungary]

That's not how capitalism works, lol.

What's not how capitalism works?

 

[Communism]

What's not how capitalism works?

The other way I can see is for these "USD Oligarch" to share wealth with everyday Pakistani so they have a bite, well, fat chance it would happen...

I'm agreeing with your sentiment.

Basically, I'm using my knowledge of Political Economy to design a capitalist system which achieves a few very narrow goals to put Pakistan on the right general economic track.

One where the incentives are better aligned with economic prosperity.

 

[Imran Khan]

Lets delete pkr and make uds our curreñcy