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August 13, 2002
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Tuesday
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Jamadi-us-Saani 3, 1423
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Forex reserves SBP waits for further fall of euro
By Mohiuddin Aazim
KARACHI, Aug 12: The State Bank believes that the euro at its present value at 97 cents is too expensive. Central bankers say it would be imprudent to purchase euro at this price and keep it as foreign exchange reserves.
A senior SBP official said that the real strength of the euro is not more than 94 cents. “Let the euro come around that level. Only then we will think about how much of reserves can be put in the new currency,” he said.
Recently the board of directors of the SBP allowed investment of up to $750 million foreign exchange reserves into fixed income US-dollar denominated bonds. The SBP is expected to make this investment through a triple A rated global investment bank. The central bank has $5 billion worth of foreign exchange reserves out of total $7 billion plus. The rest is held by the commercial banks.
Central bankers say so far no decision has been taken to put the reserves in euro adding that the euro at its current price seems over-valued. “So it is better to wait till the euro finds its real value before we use it as a reserve currency,” says a senior State Bank official.
Whereas economists worldwide are divided about what exactly is the real value of the single European currency its immediate fall after rising to 1:1 with the dollar in mid July and its subsequent failure to regain the parity proves a point: that it had crossed the parity more because of the dollar weakness rather on the back of strong fundamentals. Besides the parity was also fuelled by what currency experts say a one-time psychological gain of the euro.
But off the parity now the single European currency is trying hard to keep its head above 95 cents — and it has mostly succeeded in it in the past three weeks.
So to expect the euro to fall to 94 cents seems a bit too hard.
“We do not want to lose like some other central banks did in the past when they bought euro when it was over-valued,” says a senior central banker who does believe that the euro may further lost its charm in world markets.
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