It cannot be denied that the Pakistan Tehreek-i-Insaf (PTI) government mishandled the incident of rapid currency devaluation that occurred last week. What was perhaps more concerning than the rupee devaluation was the statement from the Prime Minister that he had not known of the depreciation of the national currency until it hit the TV screens.

It appears that the Finance Minister Asad Umar is now doing damage control as he consults with State Bank of Pakistan (SBP) representatives. At a meeting of the Monetary and Fiscal Policies Coordination Board (MFPCB), the minister expressed reservations over the timing of the recent monetary policy and said that that the government fully supported the central bank’s independent role but the bank needed to consult the government on major policy decisions.

These consultations beg the important question- to what extent should the central bank be allowed to function with autonomy and does it need to inform the government? Certainly in the past, the SBP has not functioned with autonomy. Former Prime Minister Nawaz Sharif repeatedly interfered with the SBP to prevent the rupee from devaluating and has even now opined that devaluations should be approved by the government.

However this habit of government influence on the SBP has not proved successful in the long-run. Fixing the value of the rupee is agreed by economists to be a bad financial move, which might placate the public in the short-term but depletes current reserves. It causes hurdles when the government needs to take loans or aid- it is rumoured this current devaluation came about because of IMF demands.

Perhaps the real factor that should be taken into account is the question of whether devaluation is a result of the natural cycle of supply and demand. If the devaluation occurs due to market conditions of low demand, then it should remain the SBP’s domain to do what is most suitable for exports- devaluation creates good market conditions for exports. If the devaluation doesn’t affect exports, as the Finance Ministry is alleging in this case by saying that the increase in exports was due to smooth energy supplies not devaluation, then the change in currency value has not been brought about due to market reasons and the government needs to be informed so they can curtail the side-effects.

The government may not influence SBP’s policies but it can certainly influence the market conditions that impact those policies- if this recent devaluation was a result of natural market conditions, then the government had no excuse of not being adequately informed about the exports balance.