THERE is an enduring consensus in Pakistan that the exchange rate should not be allowed to move by much as a matter of routine, and that determining its level is a matter of discretion for the state. In some areas we call this “Dar-o-nomics”, after Ishaq Dar, whose name came to be attached to exchange rate policy not because he invented it, but because he has been its most important and visible advocate. Otherwise this thinking dates back to Ghulam Ishaq Khan, who was of the mind that the state should liberalise the economy in such a way that it does not lose its commanding position as the arbiter of all economic outcomes. From deciding the exchange rate, to deciding who gets to make how much profit and what should be the normal indexed rate of return on private capital in the economy, GIK wanted a model of liberalisation that kept all these decisions firmly in the hands of the government. Nowhere is this thinking more clearly stated, and perhaps to more devastating effect, than around how it treats the question of the exchange rate. Over the years many have given voice to this thinking in different ways, and their arguments cluster around three basic assertions. One, devaluations lead to a hike in the rupee-denominated debt service burden. Two, devaluations do nothing to boost exports, they only provide a short-lived impetus that is quickly frittered away as costs of imported inputs rise accordingly, and exporters are forced to pass the price benefit on to their buyers. Three, devaluation causes inflation that burdens the poor disproportionately. None of these assertions is wrong. What is wrong, however, is deploying them in defence of a fixed exchange rate. What all those who have used these assertions over the years have failed to do is actually study Pakistan’s own episodes of exchange rate devaluation. Were they to do that, they would realise that devaluations in our own history have nothing to do with restoring export competitiveness or anything quite so grand. In truth, devaluations are forced upon us because the supply of dollars relative to the supply of rupees in the economy shrinks to a point where a mass stampede breaks out with everyone rushing for the exits. Devaluations have to be undertaken to reflect the new reality of supply and demand of FX liquidity, and to halt the stampede. That’s all. To all those who want to talk about the exchange rate, I ask them to study three episodes from Pakistan’s own history when devaluations happened. The first was in 2007 and ran till late 2008. The second began in late 2017 and ran till 2019. The third episode began in the middle of 2021 and ran till the middle of 2023. These three cycles teach us everything we need to know about exchange rate management. Devaluations in our own history have nothing to do with restoring export competitiveness or anything quite so grand. Each episode happened when Pakistan’s foreign exchange reserves were depleting fast in the face of skyrocketing import and debt service bills. In each episode the government chose to first hold the ground and finance the outflows using borrowed money. In each episode they hit a point where further financing was insufficient to meet the pace of the reserve erosion. And in each episode the government hit a point where they had no choice but to reprice the dollar to reflect the new reality of its supply versus demand. In short, in each episode the government chose to drive blindly towards a cliff. So the question to ask is what they were telling themselves along the way. The pattern is the same every time. Reserves peak, the government of the day boasts about having built “record high reserves”, and then the trade deficit begins to swell. For a few months remittances cover the trade deficit so there is no urgency to act. Then the current account swings into deficit and remains there, and then the deficits begin to grow. The government borrows to replenish the reserves. The borrowing hits a limit, the current account deficit marches along, and reserve depletion accelerates. What are they telling themselves during these times, when the pressure is mounting but has not yet reached catastrophic proportions? It has been my unpleasant duty to have covered all three of these cycles over the past two decades, and I can confirm that in each episode they tell themselves the same thing. First, that the current account deficits are temporary, or driven by one-off factors. When the reserve erosion begins to trigger a flight into the dollars, they argue that administrative measures are required to stem the outflows and bring stability back. When they are advised to reprice the dollar before things get out of hand, they respond that exchange rate adjustments do nothing to increase exports, while they produce harm for the country in the form of higher debt service bills and inflation. Eventually they all succumb. They succumb for the simple reason that you cannot endlessly spend money that is not yours to spend. And when they succumb, they grumble and complain. But they never derive any lessons from what they have just lived through, and what they have just seen happen in front of their eyes. What is it they say about those who fail to learn from their own history? They are doomed to repeat it. This is why we have been through this cycle three times already. And yet, today, one more time, we can see people in positions of power, once again, start to repeat the same old nonsense all over again. Once again people who have no idea of what Pakistan’s experience with the exchange rate has been are trying to build arguments on how to manage it. And once again, they are trotting out the same tired old tropes, thus setting the stage for round four of this unhappy roller coaster for yet one more ride. The writer is a business and economy journalist. [email protected] X: @khurramhusain Published in Dawn, October 8th, 2026