The currency of Pakistan is the Rupee that consists of both coins and paper notes. 5 denominations of paper rupees are currently in circulation with the highest note value being 5000 rupees which is worth about $60.40 US dollars at the time of this article (09/09) For a current exchange rate of the Rupee into other currencies the following currency converter and official currency valuations can be consulted. This article will look at the currency of Pakistan in terms of its history, and factors affecting its valuation.
Pakistan's currency
The circulation of rupees within the Pakistani economy is centrally controlled by the country's state bank and multiple denominations of the Rupee bank notes have a picture of Muhammad Ali Jinnah (2) who was an important figure in Pakistan's independence from India and Britain. Under Jinnah's rule, the Rupee was introduced as Pakistan's currency in 1947. Following 1947, the Rupee underwent some changes including the introduction of higher denominations.
In the years between 1995-2008, the currency of Pakistan devalued almost 200% against the US dollar.(2) This devaluation of the rupee has lowered the financial buying power of Pakistan. The current inflation affecting the rupee is also a cause for concern because it lowers the buying power of the rupee. The Pakistani rupee is affected by multiple variables as does any currency, some of which are listed below with recent trends as reported by tradingeconomics.com. (4)
Pakistan's currency
The circulation of rupees within the Pakistani economy is centrally controlled by the country's state bank and multiple denominations of the Rupee bank notes have a picture of Muhammad Ali Jinnah (2) who was an important figure in Pakistan's independence from India and Britain. Under Jinnah's rule, the Rupee was introduced as Pakistan's currency in 1947. Following 1947, the Rupee underwent some changes including the introduction of higher denominations.
In the years between 1995-2008, the currency of Pakistan devalued almost 200% against the US dollar.(2) This devaluation of the rupee has lowered the financial buying power of Pakistan. The current inflation affecting the rupee is also a cause for concern because it lowers the buying power of the rupee. The Pakistani rupee is affected by multiple variables as does any currency, some of which are listed below with recent trends as reported by tradingeconomics.com. (4)
• Exchange valuation: 82.96 rupees per USD (Negative)
• Inflation: 11-13% (Down)
• Interest rate: 14% (High)
• Central bank reserves: (Down)
• Unemployment: 5.2% (Down)
• Trade deficit: $1.15 USD (Negative)
• Government budget (-$.842 billion USD)
Financial factors affecting the Pakistani Rupee
Several factors influence the value of the Pakistan's currency; these factors are 1) economic conditions, 2) political conditions, 3) global finance and 4) State financial management. As mentioned above, the rupee has devalued significantly in the last 15 or so years. This is related to several of the following factors that may either have contributed to the decline in the rupee, been a result of the rupees devaluation or a combination of both. For example, even though Pakistan has a positive Gross Domestic Product in 2009, it still has inflation in the double digit, and deficit spending close to 6% of that GDP according to www.economywatch.com (3).
Financial factors affecting the Pakistani Rupee
Several factors influence the value of the Pakistan's currency; these factors are 1) economic conditions, 2) political conditions, 3) global finance and 4) State financial management. As mentioned above, the rupee has devalued significantly in the last 15 or so years. This is related to several of the following factors that may either have contributed to the decline in the rupee, been a result of the rupees devaluation or a combination of both. For example, even though Pakistan has a positive Gross Domestic Product in 2009, it still has inflation in the double digit, and deficit spending close to 6% of that GDP according to www.economywatch.com (3).
• Lower GDP
• Political conditions
• National credit rating
• Declining Foreign Direct Investment (FDI)
• Decreased national fiscal liquidity
The combinations of economic, political and fiscal circumstances within and outside Pakistan affect the Pakistani Rupee. The net affect has been a decline in the value of the rupee. If efficient markets hypothesis is correct, this is because market conditions have been factored into the value of the currency. Since those market conditions include economic variables, the implication is the Pakistani economy is performing, or is forecasted to perform worse.
Forecasting the Rupee
It is impossible to say with absolute certainty how the currency of Pakistan will be valued in the future, but what can be estimated is how it might be valued given economic and national trends. For example, if the Pakistani economy reduces its trade deficit by converting its labor force into a service or manufacturing economy that yields more net GDP with the same labor, then the spending power of the rupee may rise all other variables held constant.
The difficulty in forecasting currency valuations such as the rupee is adequately taking into account market and economic conditions and trends that can affect valuation. If current conditions are any indicator, the rupee may continue its decline due to a shrinking GDP, low money supply, high inflation, national liquidity etc. Economic shifts in the management of the countries finances and labor force may yield affects on the rupee, as could global reinvestment into the Pakistani economy.
Summary
The currency of Pakistan is the Rupee, created after the end of World War II, and following the independence of Pakistan. The Rupee consists of both coins and printed notes in several colors that contain the denomination of the currency and image of Muhammad Ali Jinah on the currency. The rupee is exchanged in global currency exchanges and has recently experienced heavy devaluation against the dollar.
According to a 2008 Pakistan country report, Pakistan faces economic challenges such as poor infrastructure, high cost of capital, political problems, and inflationary pressures such as the cost of oil.(5). On the other hand, growth in neighboring country's such as China and India could help the Pakistani economy if trade, economic policy, investment etc, improve. Pakistan's ability and capacity to manage and guide its economy seem to be a major component in assessing the strength of Pakistan's currency.
The combinations of economic, political and fiscal circumstances within and outside Pakistan affect the Pakistani Rupee. The net affect has been a decline in the value of the rupee. If efficient markets hypothesis is correct, this is because market conditions have been factored into the value of the currency. Since those market conditions include economic variables, the implication is the Pakistani economy is performing, or is forecasted to perform worse.
Forecasting the Rupee
It is impossible to say with absolute certainty how the currency of Pakistan will be valued in the future, but what can be estimated is how it might be valued given economic and national trends. For example, if the Pakistani economy reduces its trade deficit by converting its labor force into a service or manufacturing economy that yields more net GDP with the same labor, then the spending power of the rupee may rise all other variables held constant.
The difficulty in forecasting currency valuations such as the rupee is adequately taking into account market and economic conditions and trends that can affect valuation. If current conditions are any indicator, the rupee may continue its decline due to a shrinking GDP, low money supply, high inflation, national liquidity etc. Economic shifts in the management of the countries finances and labor force may yield affects on the rupee, as could global reinvestment into the Pakistani economy.
Summary
The currency of Pakistan is the Rupee, created after the end of World War II, and following the independence of Pakistan. The Rupee consists of both coins and printed notes in several colors that contain the denomination of the currency and image of Muhammad Ali Jinah on the currency. The rupee is exchanged in global currency exchanges and has recently experienced heavy devaluation against the dollar.
According to a 2008 Pakistan country report, Pakistan faces economic challenges such as poor infrastructure, high cost of capital, political problems, and inflationary pressures such as the cost of oil.(5). On the other hand, growth in neighboring country's such as China and India could help the Pakistani economy if trade, economic policy, investment etc, improve. Pakistan's ability and capacity to manage and guide its economy seem to be a major component in assessing the strength of Pakistan's currency.
Sources:
1. http://coinmill.com/PKR_calculator.html#PKR=5000.00
2. http://www.scribd.com/doc/14144693/Devaluation-of-the-Pakistani-Rupee
3. http://www.economywatch.com/economic-statistics/country/Pakistan/
4. http://www.tradingeconomics.com/Economics/Unemployment-rate.aspx?symbol=PKR
5. www.pakboi.gov.pk/.../Pakistan's%20Economic%20Challenge.pdf
:.
0 comments:
Post a Comment