Foreign currency deposits and international liquidity shortages in Pakistan

Abbas Mirakhor, Iqbal Zaidi

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

This paper studies the implications of foreign currency deposits (FCDs) for international liquidity shortages in Pakistan. The analysis focuses on how the large volume of FCDs and the specific institutional characteristics of those diposits have made the Pakistan economy highly vulnerable to exogenous shocks. The analysis shows that FCDs created another 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 of total balance sheet vulnerability, and we recommend measures that would make domestic currency-denominated assets attractive to investors.

Original languageEnglish (US)
Pages (from-to)49-85
Number of pages37
JournalPakistan Development Review
Volume45
Issue number1
DOIs
StatePublished - 2006

All Science Journal Classification (ASJC) codes

  • Geography, Planning and Development
  • Development

Keywords

  • Capital account liberalisation
  • Dollarisation
  • Financial development

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