THE dollar shot up in both markets on Thursday, touching Rs148 in interbank and open market trade briefly before settling at Rs146. Considering it had opened at slightly above Rs141, the drop was significant, and anxiety has been stoked about what is to come. The last devaluation had not been fully factored into the price level yet, and already we have seen another massive drop, with all indications pointing towards continued volatility. The prime minister should note that the steep fall in the value of the rupee came the very day after he met with a delegation from the exchange companies of Pakistan and urged them to help reign the volatility in. We could chalk it up to hoarding and speculation, were it not for the fact that we have seen all this before. The morning of Thursday all of the silent supports that the State Bank provides to the exchange rate were suddenly withdrawn, and the banks were told to let the rupee find its own value. This is a clear indication that the State Bank not only knew about the devaluation, but in fact let it happen by design. This is exactly how it has worked in all previous devaluations as well. What is new this time is that the government has just signed a staff level agreement with the IMF that speaks of “prior conditions” and the need to move towards a “market determined exchange rate”, and that there is a new State Bank governor who is more likely to take these commitments seriously. These observations beg a couple of important questions. Will the silent supports that the State Bank has provided to the rupee return once the dollar hits a certain level, like has happened in the past, or are we going all the way this time towards a “market determined exchange rate”? Is the new State Bank governor, the young Raza Baqir who has not seen the world from any vantage point other than that of the IMF for the past 16 years, up to the task of dealing with the seasoned sharks that operate in the country’s foreign exchange markets? Does he understand the rackets that operate just below the surface, both in the interbank and especially the open market? If not, we could all be in for a turbulent ride in the move towards a “market determined exchange rate”. Finally, how prepared is the prime minister himself to manage the forthcoming adjustment, considering this is only the beginning? He was urging restraint upon the exchange companies at the same moment as the State Bank was preparing to let the rupee fall in the interbank market. It is important to ask whether these two actions were coordinated or not.