Foreign Currency Deposits and International Liquidity Shortages in Pakistan

Author/Editor:

Abbas Mirakhor ; Iqbal Mehdi Zaidi

Publication Date:

September 1, 2004

Electronic Access:

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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.

Series:

Working Paper No. 2004/167

Subject:

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

English

Publication Date:

September 1, 2004

ISBN/ISSN:

9781451858211/1018-5941

Stock No:

WPIEA1672004

Pages:

39

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