August 5 was another dark day for Imran Khan, the former Pakistan Prime Minister and one of the world’s greatest cricket players. It was the second anniversary of his detention in Rawalpindi’s Adiala prison for exaggerated charges. Thanks to General Asim Munir, the army chief of staff, Khan is kept in a six-year -ight death cell for two years. Anyone who would have hit the courage of Sensen a long time ago less than “captain Pakistan”, as Khan is known.
The last time I spoke to Khan was on April 2, 2023. We talked about an hour and a half zoom. I was in my residence in Baltimore and Khan was in Lahore. We had an intensive discussion that took place in Lahore until last midnight. What did we talk about?
The cricket player and the monetary committee
The focus of our conversation was economic policy. It was not the first time that we dealt with what had to be done to extract Pakistan from his economic loop of fate. Our starting point was the rupie, which had relocated 48% of its value against the US dollar since June 2021. In order to pull Pakistan out of his loop and to establish stability, I recommended the medicine that I had successfully prescribed in Estonia (1992), Lithuania (1994), Bulgaria (1997) and Bosnia-Hegovina (1997) (1997) (1997) (1997). In all of these cases, a currency authority has done the trick as always. In fact, there have been over 70 currency authorities since the first currency committee was founded in Mauritius (1849), and nobody has failed. Even the Currency Board, which John Maynard Keynes installed in Archangel during Russia (1918), worked without breakdown.
What is a currency committee? A currency committee provides information and coins that can be converted converted into a foreign anchor currency such as the US dollar on Demand to a fixed exchange rate. It is necessary to keep the reserves of the anchor currency, which corresponds to 100% of its money liabilities.
A currency authority has no monetary powers of the discretion and cannot issue a credit. It has an Exchange-Rate directive, but no monetary policy. Its sole function is to exchange domestic currency that she spends on a fieder for an anchor currency. The currency of a currency committee is a clone of its anchor currency.
A currency authority does not require any requirements and can be installed quickly. Government finances, state -owned companies and trade do not have to be reformed before a currency authority can issue money.
The Bulgarian and Lithuanian examples
Khan and I spent a lot of time for our zoom call in April 2023 with the Currency Board, which I installed in Bulgaria when I was President Petar Stoyanov’s head management consultant. In 1997 Bulgaria stood a raging hyperinflation of 24% per month and one banking crisis. After the currency authority was installed in July, the hyperinflation immediately stopped. Until 1998 the banking system was solve, money market interest rates had fallen from three -digit digits to an average of 2.4%, a massive fiscal deficit became a surplus, a deep depression became economic growth, and Bulgaria’s exchange of abroad is more than tripled. Today, thanks to its currency committee, Bulgaria has the second lowest debt relationship in the EU, behind Estonia.
What impressed me to Khan that evening in 2023 was that he understood the technical details and the political effects of the installation of a currency committee. Our brainstorming session reminded me of the days when I was a state consultant in Lithuania and chief advisor to the Prime Minister Lithuania Adolfas Šleževičius (1994-1996). It is not surprising that Šleževičius was able to deal with technical arguments and their political effects. After all, he had a doctorate at Moscow State University.
Pakistan’s Doom -Loop
A currency authority would stabilize Pakistan’s economy and deliver a massive self -confidence shock. Pakistan would leave his doom loop, which is characterized by the lack of trust in the rupie, a capital escape and the accumulation.
How big is the problem? With the residual method of the World Bank for measuring capital flight, I estimate that the capital flight in Pakistan was a whopping 37% of the enormous debts that Pakistan has emerged since 2000. Unfortunately for Pakistaner, which flow in Pakistan 37% of the funds flowing in Pakistan, are siphonic and diagonally from Pakistan. This grinding loop requires more and more borrowing. That is why Pakistan has led the Bettling Bowl to the international monetary fund 24 times.
While I am writing from Imran Khan’s detention for several false charges in the second year, I can understand why the Pakistani elites, including General Munir, want to keep him behind bars. You want to continue parking money in Dubai.
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