Now that we have a reasonably sized foreign exchange reserves, we can use these to our diplomatic advantage. The European Union is upset with us for having placed a large order for new aircraft with Boeing Corporation of the USA and not with the Airbus Indusrtie of Europe.

The Europeans say that they gave us as good a deal as Boeing but we succumbed to the American pressure and signed on the dotted line.

The Europeans gave us an excellent trade agreement in September 2001. This agreement allowed most Pakistani exports to the European market to be allowed to go duty-free. They also gave us a one-time across-the-board increase in quotas by 15 per cent.

These are very substantial concessions. We have got duty-free access to the EU despite the fact that their products have to pay the same duty in Pakistan as anyone else’s.

Why countries line up to join the EU is because they will then get duty-free access to it. We have got this without even joining. It is largely due to this that our exports to the EU increased by almost 30 per cent in 2002 as compared to what they were in 2001.

Had it not been for quota restraints, we could have done even better. Even this year the pace of exports is brisk and we can achieve higher figures.

As opposed to this, the USA gave us almost nothing. A small adjustment in quotas amounting to about 1.5 per cent, but no duty advantage at all. This was all due to our being a front-line state in a largely American war. So the European pique is quite understandable.

No doubt, the Americans gave us debt write-offs of about a billion dollars but there were no trade concessions despite three delegations led by the US officials for this purpose. They kept promising us the moon but actually delivered very little. Yet we went ahead and bought the planes from the USA.

The Europeans are now so upset that they have refused to allow Pakistan to avail the 4,000 tons of special flexibilities for textile exports in 2002. These are concessions given to us in the last trade agreement and never refused in the past. As a consequence, towels, bed-sheets, and trousers—costing millions of dollars- exported in late 2002 were stranded at EU ports and the EU customs refused to clear them. As a consequence, we had to pay huge demurrage charges and Pakistan lost the confidence of the buyers. Most of them think we are an unreliable partner anyway and when something like this happens their worst fears are confirmed.

To their credit, the secretary of commerce and his staff and then the minister himself made repeated trips and efforts to resolve the issue. Finally, the EU authorities agreed to release the stuck-up cargo by debiting the 2003 quota. This will mean lower exports this year as the quotas will be exhausted much sooner. On top, they may refuse special flexibilities this year again.

Under these circumstances, we have to make a conciliatory gesture to them. I don’t think we have any more money to spend on planes.

My suggestion is that we shift at least a half of our foreign currency reserves from Dollars into the Euro. In any case, the Dollar has been depreciating badly over the last six months. The rate of return being given by foreign banks for Dollar or Euro deposits is nominal.

I also feel that our foreign currency reserves should be spread over a basket to avoid excessive losses in case any particular currency depreciates badly. A possible attack on Iraq might also cause another downward spiral of the dollar. The basket should also have some similarity with the trade flows. As Europe is now almost as big a trading partner as the USA. Why not keep half of our currency in the Euro as well?

Whether we gain from this switch or not, the Europeans will be delighted. One of the reasons that they created the Euro was that it would become a major reserve currency. Host countries benefit greatly if their currency is considered a reserve currency by foreign individuals and governments.

Consider what happens when you pick up a 1000 dollars of cash when you are off on a travel, say Singapore. In effect, you have given a loan to the USA. When you spend your dollars in Singapore or convert it to the Singaporean currency they do not go back to the USA.

They will probably be bought by somebody else who is off to China. More than likely it will be years before they actually get presented to the Federal Reserve to be redeemed. Even then the person or institution presenting it will want fresh currency notes in return.

More and more people in the world are resorting to the dollar in preference to their own currencies. In many countries it is considered to be better than the legal tender. Many persons even keep a part of their savings in dollar notes as well. When federal reserves or federal banks keep money in dollars it is like an interest-free loan to the USA government.

I believe that the US authorities ship out a net export of $12 billion a year in currency notes. Until these actually get spent in the USA it is gift by the world to the American people.

That the US can go on running billions of dollars trade deficit year after year is because the rest of the world considers the dollar a safe reserve. If we can lay the first stone in a similar edifice for the Euro it will be a great service to the EU.