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Better Option – Keeping Dollars or Investment?

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Mubeshir Ali Kazmi (ACA)

This article appeared in Pakistan Accountant July-Sept 2010 issue


Memories are valuable in life. I still remember that day when my uncle gave me a ten US dollar note on my tenth birth day. I could not buy an ice cream from general store against the currency but it did create interest and I started collecting and saving foreign currency notes and coins. I have extended family living broad hence my collection started growing steadily. At that time the rupee was trading about 29.40 to dollar (imagine now when Pak currency has fallen to the lowest level verses dollar on the inter-bank market for buying and selling at almost 86.00.)

Graphical representation of Pak rupee value to dollar is as shown in the diagram. Why is rupee falling so fast? Most economists are of the opinion that the main reasons behind the fall of the rupee are an increased demand for dollars due to a spurt in crude oil prices and the flight of foreign funds from the local markets. Demand for rupees, simultaneously, has dipped because capital inflows are down.

Our currency is staggering in a see-saw fashion and declining trend in the value of Pak rupee is increasing day
by day. As a result people have started having foreign currencies at their homes and in bank lockers after purchasing it from the local market. This is another reason of escalating the value of dollar. They believe that keeping dollars and other demanding currencies in their pocket is good option rather than investing it some where else. I have asked number of my friends who are in the know of the matter as to why they are doing this? They simply reply that they do not see a better alternative to invest their money.

Sadly, this perception is wrong. There are number of options available in the market at this time even when liquidity crunch has caught our economy in vice-like grip. There are alternative that would not only secure for our savings at very competitive rate but can also contribute to our national economy. I remember what Quaid-e-Azam had rightly said,

“Thrift as a national asset is going to play an important part in the building up of the state”. So save and invest in Pakistan saving certificates.

Government of Pakistan has issued number of certificates including Defense Saving Certificates, Special  saving Certificates, Regular Income Certificates and Bahbood Saving Certificates. Among all Bahbood Saving Certificates for senior citizens and widows are more lucrative than others in terms of rate of return that is 14.16% p.a. This return is exempted from deduction of withholding taxes and Zakat and is far better than the annualized rate of increase in dollar historically that is clearly shown in the diagram except for the year 2009. Further, volatility of exchange rate in favorable direction is quite uncertain, however profit against saving certificates would remain definite as finalized at the time of purchase.

Most of the people are not very much aware of the pros and cons of these saving schemes. Normally retired people are interested to place their retirement funds in any one of the schemes offered by saving centers to make ensure their monthly returns. Some people including businessmen who have ability to judge the main risk, that is the cost of opportunity would reluctant to invest in these schemes. Since this kind of securities offer a very low risk, the interest rate is also lower than the ones offered by private entities.

However, still there is a margin of arbitrage gain that an investor can obtain through replacing their investment in dollars with Behbood scheme. In coming future current offering rates of return against these schemes would be decreased as market correction.

Where is the best place for our investment in today’s scenario considering all risk factors? I posed this  question to my colleagues, peers and market experts. Most of them who continuously watch market dimensions like Mr. Tahir Hussain Raza (Director Finance of Acro Group of Companies), working in financial market for many years agree with this analysis and have suggested the same. This understanding can help anyone to make an informed saving decision and not “putting all eggs in one basket.” On the other hand, this would be a good step to reduce a little portion of the undocumented economy worth Rs.100-200 billion of our country.



About the author:

The author is Chief Financial Officer and Company Secretary, Acro Spinning and Weaving Mills, lahore.

Mubeshir Ali Kazmi is an economist, writer and a blogger. He can be reached here.

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