Open AccessForeign Currency Deposits and International Liquidity Shortages in Pakistan
Author(s) -
Abbas Mirakhor,
Iqbal Zaidi
Publication year - 2022
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/v45i1pp.49-85
Subject(s) - market liquidity , currency , working capital , economics , economic shortage , fiscal sustainability , business , sustainability , capital account , liberalization , monetary economics , financial system , government (linguistics) , international economics , finance , fiscal policy , market economy , ecology , linguistics , philosophy , biology
This Working Paper should not be reported as representing theviews of the IMF. The views expressed in this Working Paper are those ofthe author(s) and do not necessarily represent those of the IMF or IMFpolicy. Working Papers describe research in progress by the author(s)and are published to elicit comments and to further debate. This paperstudies the implications of foreign currency deposits (FCDs) forinternational liquidity shortages in Pakistan. The analysis focuses onhow the large volume of FCDs and the specific institutionalcharacteristics of those deposits have made the Pakistan economy highlyvulnerable to exogenous shocks. The analysis shows that FCDs createdanother channel for government borrowing, and fiscal sustainability in a“closed” system may be very different from sustainability in a more“open” system. There is a need to think of these issues in terms oftotal balance sheet vulnerability, and we recommend measures that wouldmake domestic-currency-denominated assets attractive to investors. JELClassification Numbers: E52; F41 Keywords: Capital AccountLiberalization, Financial Development, Dollarization