Folly of fixing the exchange rate

IN recent years, Pakistan’s foreign exchange market has presented a strange paradox: the rupee appears ‘stable’, official reserves have grown, and the informal/black market has receded. But behind this illusion of calm lies a hollow economy, ie, exports remain stagnant, competitiveness is deteriorating, and industrial confidence is eroding. Is this the success of prudent macroeconomic stewardship or the triumph of administrative sleight of hand? Despite the painful experience of at least six major currency crises, the state continues to obsessively fix the nominal rate. From 2023 to 2025, the authorities indeed managed to stabilise the currency and rebuild reserves. But at what cost? The apparent stability has been engineered not through market trust or export dynamism, but through an elaborate system of administrative controls and currency rationing.