Reboot of Barter Economy: 1st blow to dollar in Pakistan

By Yasir Habib Khan | Gwadar Pro Jun 7, 2023

In the backdrop of Pakistan's trade shift to barter economy, de-dollarization or lower dependency on the U.S. dollar has set its strong foothold in the country offering Pakistan to revitalize its economy with fewer vulnerabilities from exchange rate risks, balance of payments crisis and inflation.  

In a strategic move, Pakistan recognized the potential of barter trade agreements with countries Iran, Afghanistan, and Russia and implemented 'business-to-business barter trade mechanism 2023' on June 2 facilitating state-owned and private enterprises in Pakistan to engage in barter trade with all three neighboring countries. This shift aligns with the global trend towards de-dollarization, driven by geopolitical and economic factors.  

Pakistan's trade with Iran, Afghanistan and Russia has innate potential to swell but US-led trade curbs acted as a dampener that kept the quadrilateral trade among all neighboring countries at ebb.  

The bilateral trade volume between Pakistan and Iran has stood at around $2 billion. Pakistan's trade volume with Russia stands at approximately $400 million. The transit trade volume between Pakistan and Afghanistan is estimated to be around $1 billion. If executed in true letter and spirit, the barter trade among Pakistan, Iran, Russia and Afghanistan will go manifold.  

Meanwhile, before subscribing barter trade agreements, Pakistan has also begun importing various essential items from these countries. For instance, Pakistan is importing 100 MW of electricity from Iran, addressing its energy needs through bilateral cooperation. Additionally, Pakistan has initiated the import of crude oil, wheat, and other commodities from Russia. Instead of payment in dollars, Pakistan will settle these transactions through the exchange of commodities or goods, further reinforcing the de-dollarization policy.

The barter trade mechanism is a shot in the arm of Pakistan limping economy. The country of approximately 240 million people is facing significant challenges related to the balance of payments crisis and soaring inflation which reached an alarming rate of nearly 38 percent in May 2023. Pakistan's foreign currency reserves have dwindled to slightly above $4 billion, a level that can barely sustain imports for a month, according to central bank data.

Barter trade presents numerous benefits for Pakistan's economy. By exporting a wide range of goods, including agricultural products, textiles, and sports equipment, Pakistan can showcase its diverse offerings to international markets. Simultaneously, barter trade allows the country to import vital commodities such as crude oil, LNG, and LPG from its trading partners, satisfying its energy requirements and reducing dependence on traditional trading methods. Diversifying imports to include industrial machinery, wheat, pulses, and other goods further supports Pakistan's industrial growth and overall economic landscape.

As the world increasingly calls for trade to be conducted in currencies other than the U.S. dollar, Pakistan's barter trade move paving the way for de-dollarization aligns with a broader global trend. Many countries, including Brazil and Southeast Asian nations, are diversifying their currency holdings and reducing reliance on the greenback due to concerns about its stability and aggressive rate hikes by the U.S. Federal Reserve. China, as the world's second-largest economy, has been at the forefront of the de-dollarization movement, further driving this shift in global trade dynamics.

Effective implementation of barter trade and de-dollarization is key for Pakistan to capitalize on the opportunities presented by this transformative shift. It positions Pakistan as a proactive player in the evolving international financial system, strengthening its economic ties with regional and global partners. Through careful planning and strategic execution, Pakistan can harness the benefits of barter trade and de-dollarization to fuel economic growth, enhance regional cooperation, and pave the way for a more prosperous future.

The barter trade system also presents an opportunity for Pakistan to address its energy requirements. By exporting surplus agricultural products, Pakistan can secure the import of vital commodities such as crude oil, liquefied natural gas (LNG), and liquefied petroleum gas (LPG) from its trading partners. This not only fulfills Pakistan's energy needs but also reduces its reliance on traditional payment methods, such as the U.S. dollar, which can be subject to exchange rate risks and volatility.

Moreover, the barter trade system enables Pakistan to diversify its import spectrum and support its industrial growth. By importing industrial machinery, wheat, pulses, and other goods, Pakistan can strengthen its manufacturing sector, improve productivity, and create new employment opportunities. This, in turn, contributes to overall economic development and sets the foundation for long-term growth.

These developments underscore the tangible progress that Pakistan has made in diversifying its trade partners and reducing dependence on traditional payment methods. By capitalizing on the potential of barter trade and embracing de-dollarization, Pakistan is poised to expand its trade volumes, strengthen economic ties, and pave the way for sustained economic development.

The successful implementation of the barter trade system requires careful planning, effective coordination among relevant stakeholders, and a supportive policy framework. Pakistan's government, in partnership with key industry players, needs to ensure seamless logistics, transparent mechanisms, and efficient monitoring to facilitate the smooth operation of the barter trade system. Additionally, the development of robust infrastructure and streamlined customs procedures can further bolster the efficiency and effectiveness of the system.

As Pakistan forges ahead with its barter trade system, it sets a precedent for other countries looking to diversify their trade relationships and reduce reliance on traditional payment methods. This bold step towards economic development, driven by mutually beneficial exchanges and strategic partnerships, positions Pakistan as an emerging player in the global trade landscape. By embracing the barter trade system with Iran, Afghanistan, and Russia, Pakistan is laying the groundwork for sustainable growth, greater economic stability, and a prosperous future.

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