Real currency difference between Pakistan and UK

[Sharjeel]

Real currency difference between Pakistan and UK

Let us take a mediocre media creation and elite gaming computer as an example to compare and discuss the real price difference between Pakistan and UK.
Such system would cost approximately £3500 excluding the VAT (Value Added Tax) in the UK. The figures will not include any sort of tax nor will any sort of cost of living be included in the figures as adding these variables would complicate the formula far too much for the target reader.

Let us start by examining how long it will take a UK citizen to save enough money to buy the above computer. The UK minimum wage for workers over the age of 22 is £5.05 per hour but let us round this figure down to five pounds, this works out to a total of 200 pounds per week if the person works 8 hours a day 5 days per week. At this rate it will take the UK citizen 17.5 weeks to save the £3500.

Now let us take a look at time taken by a Pakistani citizen.
The minimum salary a citizen of Pakistan can expect each day is Rs 250 and working for five days every week should result in a salary of Rs1250 every week.
Given the current currency rate of Rs 102.6 for each pound, our sum of £3500 translates to Rs 359,100 in Pakistan which should take the Pakistani citizen 287 weeks to save up.

The difference between the two figures (UK 17.5 weeks, Pakistan 287 weeks) is 1640% and what would take a person in UK ⅓ of a year to save takes a Pakistani working equally as hard 5½ years to save.

There are various ways to reduce this difference and one is to increase the value of the Rs.
Since prices of such things as computers and electronics are pegged to strong international markets (usually US) if the value of the rupee is increased the amount of money the individual would have to pay in rupees would be significantly reduced.

Let us say the rupees value increases to Rs 50 per Pound the person will then have to pay Rs 175,000 as compared to Rs 359,100 a Pakistani pays now. And this would take 140 weeks to save which is 2 and ⅔ of a year. This is a significant difference.

An individual can help the average Pakistani citizen by simply using Pakistani banks for his/her money. This action will allow the banks to lend out more money to investors thus increasing investment and also the value of the rupee in the international currency market.

Author: Sharjeel Ali
This article is the intellectual property of http://www.PAKeconomist.com/

http://www.pakeconomist.com/currency%20difrence.doc

 

[sigatoka]

Central bank intervention to raise the strength of the pakistani currency (by purchasing Pakistani currency with Central Bank reserves of other currenies) for the purpose of making foreign computers more affordable is misguided.

In Indonesia such a policy might be beneficial. Indonesia as an OPEC member used to export oil but because it heavily subsidizes local consumption, It has stopped exporting and now imports coz demand for Oil which has become artificially cheap has skyrocketted. Indonesia exports much less Oil, since Indonesian Oil has to be bought in Indonesia dollars; there has been a reduction in demand for Indonesian dollars and the currency has depreciated. In Indonesias case, dropping the subsidises will reduce domestic consumption, lead to an increase in Oil exports and increase the value of Indonesian dollars. This would allow Indonesia to import more computers by wasting less Oil.

In Pakistan's case i am not aware that massive domestic subsidies exist for potential exports, hence this opportunity for currency appreaciation cant be utilised.

Currency Appreciation will also fly in the face of export led growth pioneered by South East Asia and now being followed by China. Yes, more computers might come in but hundreds of thousands of jobs might be lost due to Exports becoming less competitive due to currency appreciation.

The last objection is a matter of practicallity, Pakistan does not have large foreign exchange reserves, to increase the value of the currency will mean lowering the reserves. Reserves are used to pay for the countries imports; It wont take long to piss away pakistans 125b reserves with this idiotic policy and the results will be a balance of payments crisis.

a balance of payments crisis has real economic costs. All Mutually beneficial transactions between Pakistan and other nations might not occur because the balance of payments crisis acts as a tax on transactions. the other parties will be fearful whether they will receive their payments.

Pakistan at the very least should pursue a currency policy that does not deplete foreign exchange; THAT is not overvaluing the currency.

I would personally hope for a slightly to moderately undervalued Currency; which would increase foreign reserves and keep Pakistani factories chugging along with high employment because of export competitivness.

Export oriented growth offers Pakistan a chance that Malaysia, Singapore, Taiwan, and China are taking or have taken. It offers Pakistan a chance to leapfrog the backward reargaurd economic ideology of import substitution that India, Iran dogmatically pursue.

 

[Sharjeel]

Originally posted by sigatoka@Nov 26 2005, 12:44 PM
Central bank intervention to raise the strength of the pakistani currency (by purchasing Pakistani currency with Central Bank reserves of other currenies) for the purpose of making foreign computers more affordable is misguided.

In Indonesia such a policy might be beneficial. Indonesia as an OPEC member used to export oil but because it heavily subsidizes local consumption, It has stopped exporting and now imports coz demand for Oil which has become artificially cheap has skyrocketted. Indonesia exports much less Oil, since Indonesian Oil has to be bought in Indonesia dollars; there has been a reduction in demand for Indonesian dollars and the currency has depreciated. In Indonesias case, dropping the subsidises will reduce domestic consumption, lead to an increase in Oil exports and increase the value of Indonesian dollars. This would allow Indonesia to import more computers by wasting less Oil.

In Pakistan's case i am not aware that massive domestic subsidies exist for potential exports, hence this opportunity for currency appreaciation cant be utilised.

Currency Appreciation will also fly in the face of export led growth pioneered by South East Asia and now being followed by China. Yes, more computers might come in but hundreds of thousands of jobs might be lost due to Exports becoming less competitive due to currency appreciation.

The last objection is a matter of practicallity, Pakistan does not have large foreign exchange reserves, to increase the value of the currency will mean lowering the reserves. Reserves are used to pay for the countries imports; It wont take long to piss away pakistans 125b reserves with this idiotic policy and the results will be a balance of payments crisis.

a balance of payments crisis has real economic costs. All Mutually beneficial transactions between Pakistan and other nations might not occur because the balance of payments crisis acts as a tax on transactions. the other parties will be fearful whether they will receive their payments.

Pakistan at the very least should pursue a currency policy that does not deplete foreign exchange; THAT is not overvaluing the currency.

I would personally hope for a slightly to moderately undervalued Currency; which would increase foreign reserves and keep Pakistani factories chugging along with high employment because of export competitivness.

Export oriented growth offers Pakistan a chance that Malaysia, Singapore, Taiwan, and China are taking or have taken. It offers Pakistan a chance to leapfrog the backward reargaurd economic ideology of import substitution that India, Iran dogmatically pursue.

[post=3749]Quoted post[/post]​

i meant off-shore pakistanis. not govermental reserve.. lol...

if all the off-shore pakistanis started using pakistani banks instead of HSBC, LOYDs TSB, Etc Etc. then there will be a slightly higher currency value.

the best way the banks can help:
pakistan has a very good growth prospect and investment oppertunities thus the pakistani banks can market this and offer a higher interest rates for savings accounts etc etc especialy in the mist of the european pensions crises... if they can provide competative services like direct debit, etc and more branches more and more people will use pakistani banks.

will growth of pakistani banking sector in foriegn countries effect pakistans economy positively?

i believe yes because it will allow the banks to invest higher ammounts of mony (which is gained from the foreign markets) into the pakistani economy. thus higher exports. hence higher currency values. and because of the current boom i do not see where the banks would strugle in acheive higher rewards.

the other way the banks can help is by using the RS instead of doller as their reserve (as you said) but i doubt they will do that (fully). but i assume it is only inevitable for the doller to crash be it soon or in not so distant future it is only a matter of time. what can the banks do to prepare them selfes?...so what could be the next global currency?



oh and yes it would actualy make the computers cheaper as their prices are tied to the US Market. it doesnt matter about the pakistan supply and demand....the prices in US are about same as in Pakistan...and computers is just a example of a educational tool. other stuff tied to the US market would also become cheaper. for example games consoles, etc etc etc. i simply choose the computer as it is a educational tool and would effect the reader in a diffrent way.

 

[sigatoka]

Yahya; i still fail to understand how if foreign Pakistanis were to use Pakistani banks instead of foreign ones would boost the value of the Pakistani currency.

It is possible to achieve an undervalued currency for infinity because the bank by continuely increasing foreign reserves will push the value of the rupee down.

It is not possible to achieve an overvalued currency for infinity because the bank will have to continuesly reduce foreign reserves which will increase value of rupee. But the bank can't reduce foreing reserves below zero; it is impossible.

There is a strange assymetry to this situation. If you find a flaw Yahya; don't hesitate to post your reply.

 

[Sharjeel]

Originally posted by sigatoka@Jan 12 2006, 08:31 AM
Yahya; i still fail to understand how if foreign Pakistanis were to use Pakistani banks instead of foreign ones would boost the value of the Pakistani currency.

It is possible to achieve an undervalued currency for infinity because the bank by continuely increasing foreign reserves will push the value of the rupee down.

It is not possible to achieve an overvalued currency for infinity because the bank will have to continuesly reduce foreign reserves which will increase value of rupee. But the bank can't reduce foreing reserves below zero; it is impossible.

There is a strange assymetry to this situation. If you find a flaw Yahya; don't hesitate to post your reply.

[post=5303]Quoted post[/post]​

right now there are hundreds of millions in offshore banks being invested by ofshore banks in of shore countries.

put that mony into our own banks and the mony will be invested in pakistan.

thus a improvement in economy. which would help. "every last man counts" and some generals still say this when they have 100,000 strong armys.....

also the mony will obviusly have to be converted into RS to be invested in pakistan hence increasing demand thus price.

im not saying over value the currency. i am saying increase the actual value. we can do this by expanding our banks into foriegn countries and our banks will have a advantage as they will have the ability to give higher returns then the native banks of those countries, this is because of our growth rate and the pottential that still remains. in countries like UK and US there is very litle potential for growth. thus very litle growth.

 

[Sid]

I'm not sure if the author of the article knows much about economics but according to how much I know about it, his article is close to being trash. All due respect, but I don't even want to comment on this; this is just ridiculous.

There's a little more to Purchasing Power Parity (PPP) than what is explained above.

 

[Zeeshan S.]

lol its about reinforcement Sid. Positive feedback making the author write again. Negative feedback telling the author never ever write again. The author is a newbie, and has a very little knowledge but still wants to write articles for the sake of it.

 

[sigatoka]

Originally posted by Sid@Feb 23 2006, 05:05 AM
I'm not sure if the author of the article knows much about economics but according to how much I know about it, his article is close to being trash. All due respect, but I don't even want to comment on this; this is just ridiculous.

There's a little more to Purchasing Power Parity (PPP) than what is explained above.

[post=6131]Quoted post[/post]​

Sid if the article is trash, you should be very easily be able to point at least the major weaknesses. No one is asking you to do a comprehensive debunking of the article, just a brief outline of why you believe it to be crap will do.

[Mod Edit: Don't question my motives of being on a forum; stick to yours. Thnx]

 

[Zeeshan S.]

I have to agree with my sigatoka buddy. He always quotes and i like it.

"Criticize the points, and not the person!" in another words attack the points and not the person.

[Mod Edit: If you have something to say directly to a member whether a Mod or not, use the PM feature. Thnx]

 

[Sid]

The most basic flaw of the opening article is that it takes off by talking about 'buying an elite gaming computer' and the author uses that to compare Purchasing Power Parity between the UK and Pakistan.

PPP is always measured by taking in to account 'needs' and not 'wants'. This means the basic neccessities of life like food for example. How much does it cost to buy bread in UK as compared to what it costs in Pakistan for starters.

Secondly, the author directly converts the Pound Sterling value of that gaming system to Pakistani Rupees to see how long it would take an average Pakistani to be able to buy it which is wrong as far as I remember my economic lessons. This is because, the same system 'would' most certainly cost less in Pakistan. Why? Same way a similar pair of Nike trainers costs $200 here in Canada while in Pakistan it is available for max. Rs. 5000. Go figure!

More to come... (when I have more time).