One urgent problem that has an impact on both Pakistan’s economy and its people is the depreciation of rupee. For several years now, the value of the rupee has been declining in comparison to important world currencies, like the US dollar. Due to the rise in living expenses, it is now more difficult for Pakistanis to pay for their needs in life. We shall examine the causes of the depreciation of rupee and its effects on the economy in this post.
The Benefits of a Stable Currency and depreciation of rupee disadvantages
Any nation’s economy depends on having a strong currency since it affects its ability to trade and draw in foreign capital. A country may import products and services more affordably and more easily when its currency is strong than when it is weak. A strong currency is also thought to be a symbol of economic stability and expansion, which draws in outside investment.
However, the term “depreciation of rupee” describes the decline in the Pakistani rupee’s value relative to other currencies. It happens when there is less demand for the rupee on the currency exchange market, which lowers the value of the rupee in relation to other currencies. Inflation, a negative trade balance, political unrest, and government monetary policy are all factors that contribute to the depreciation of rupee. Increased import costs, decreased export competitiveness, and a negative effect on the nation’s foreign exchange reserves can all result from the depreciation of rupee.
Factors that influence the rupee’s value
The Pakistani rupee has declined in value due to a number of issues. A few of these are:
External variables
A significant aspect that influences the value of a currency is inflation. A nation’s currency depreciates when its rate of inflation rises. The rising rate of inflation in Pakistan over the past few years has aided in the rupee’s devaluation.
Another element that influences the value of a currency is the balance of payments. The value of the currency will fall if a nation has a trade imbalance, which is defined as more imports than exports. Since a few years ago, Pakistan has had a trade deficit, which has caused the rupee to decline even further.
Internal Elements
Political Instability: Political unrest can significantly affect a currency’s value. Investors and the general public are less willing to hold or invest in a nation they believe to be politically unstable, which lowers the value of the nation’s currency.
Corruption: Corruption may also contribute to a currency’s decline. A nation’s currency’s value may fall if people lose faith in its institutions and economy as a result of perceptions that the nation is corrupt.
Depreciation’s effects on the economy and people
The economy and people of Pakistan have been significantly impacted by the depreciation of rupee. These effects include, among others:
Cost of Living: As the price of imported products and services has increased, so has the cost of living for locals. People now find it challenging to pay for necessities like food, clothing, and housing.
Reduced Foreign Investment: Pakistan has seen less foreign investment as a result of the rupee’s depreciation. The economy of the nation has suffered as a result, making it more difficult for it to expand and generate new jobs.
Reduced Purchasing Power: Citizens’ ability to make purchases has lessened as a result of the rupee’s declining value. As a result, people can buy fewer things with the same amount of money, which lowers their level of living.
Read Also: PKR falls off a cliff: Loses 32.9 rupees per US dollar in a week
Conclusion
In conclusion, there are many different factors contributing to the depreciation of the Pakistani rupee. Read the causes and consequences of inflation