Foreign Currency Deposits and International Liquidity Shortages in Pakistan

September 1, 2004

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Abbas Mirakhor, and Iqbal Mehdi Zaidi. Foreign Currency Deposits and International Liquidity Shortages in Pakistan, (USA: International Monetary Fund, 2004) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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 deposits 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.

Subject: Asset and liability management, Bank deposits, Central banks, Commercial banks, Financial institutions, Financial services, Foreign exchange, International liquidity, International reserves

Keywords: Balance of payments, Bank deposits, Capital account, Capital Account Liberalization, Commercial banks, Credit rationing, Current account, Dollarization, FCD deposit, FCD scheme, Financial Development, Foreign currency, International liquidity, International reserves, Private sector, Risk premium, State bank, WP

Publication Details

Pages:

39
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/167
Stock No:

WPIEA1672004
ISBN:

9781451858211
ISSN:

1018-5941

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