Open AccessAdvance Deposit Requirements for Imports in Pakistan
Author(s) -
Mansoor Elahi
Publication year - 1962
Publication title -
pakistan development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.154
H-Index - 26
ISSN - 0030-9729
DOI - 10.30541/v2i2pp.215-228
Subject(s) - currency , devaluation , economics , balance of payments , boom , payment , collateral , balance (ability) , margin (machine learning) , international economics , monetary economics , business , finance , medicine , machine learning , computer science , physical medicine and rehabilitation , environmental engineering , engineering
The system of advance deposit requirements for imports, as ameans of improving the balance of payments, has achieved some popularityin recent years. Most frequently used in Latin America, this technique,in the form of margin requirements at the time of opening a letter ofcredit, has also been employed in Pakistan from time to time. Advancedeposit requirements serve as a selective credit control instrument toraise the cost of financing imports and thus directly affect the abilityand willingness to import. Under certain conditions, the requirement canalso be an effective general instrument of monetary policy through itsindirect effects on the supply and demand for liquid assets in theprivate sector. These direct and indirect effects may then reduce thedemand for imports and thus improve the balance of payments of thecountry concerned. Imports in Pakistan were liberalized in August 1948,because at that time the limited productive activity in the country madelarge quantities of imports a physical necessity. In September 1949, thedevaluation of sterling, followed by Pakistan's decision not to devalueits own currency, rendered importing very profitable. During 1950 thedemand for imports increased as a result of rising incomes due to theKorean boom. To limit this demand, orders were issued in September 1950by the State Bank of Pakistan requiring advance deposits onimports.