In the complex world of international finance, currency exchange rates are constantly in flux. One such pairing that has seen significant movement in recent times is the dollar against the Pakistani rupee. Understanding why the dollar is rising against the Pakistani rupee requires delving into a multitude of economic, political, and global factors. This article aims to provide a comprehensive analysis of this phenomenon.
Before we specifically examine the dollar – Pakistani rupee exchange rate, it’s essential to understand the basic concept of currency exchange rates. An exchange rate is the value of one currency expressed in terms of another currency. For example, if the exchange rate of the dollar (USD) against the Pakistani rupee (PKR) is 280, it means that 1 US dollar can be exchanged for 280 Pakistani rupees. Exchange rates are determined by the forces of supply and demand in the foreign exchange market. When the demand for a particular currency is high, its value increases relative to other currencies. Conversely, when the supply of a currency is high compared to its demand, its value decreases.
Dollar’s Rise Against the Pakistani Rupee
Historical Trends of the Dollar – Pakistani Rupee Exchange Rate
Over the years, the Pakistani rupee has generally trended towards depreciation against the US dollar. In the early 2000s, the exchange rate was around 50 – 60 PKR per USD. However, as time passed, various economic and political factors led to a continuous decline in the value of the rupee. By 2012, the exchange rate had reached approximately 90 PKR per USD, and in more recent times, in 2025, it has crossed the 280 – mark.
Periods of Sharp Depreciation
There have been several periods of sharp depreciation in the rupee’s value. For instance, in the early 2010s, the rupee faced significant downward pressure. This was due to a combination of factors including a large trade deficit. Pakistan has long been importing more goods, especially oil and related products, than it exports. The need to pay for these imports in US dollars increased the demand for dollars in the market, putting downward pressure on the rupee.
Another period of sharp decline was in the late 2010s to early 2020s. Political instability within Pakistan, along with external factors such as the global economic slowdown and the impact of the COVID – 19 pandemic, contributed to the rupee’s depreciation. The government’s struggle to manage its fiscal deficit also played a role, as it often had to rely on external borrowing, which further increased the country’s dollar – denominated debt and the demand for dollars.
Macroeconomic Factors in Pakistan
Trade Deficit
Pakistan has a persistent trade deficit. The country imports a wide range of goods, with oil being a major import item. Since oil is priced in US dollars globally, a large volume of imports means a high demand for dollars. On the other hand, Pakistan’s exports, mainly consisting of textiles, rice, and leather products, have not been sufficient to generate enough foreign exchange to cover the import bill. For example, in recent years, the trade deficit has been in the billions of dollars annually. This continuous shortfall in the balance of trade has led to an increased supply of Pakistani rupees in the foreign exchange market as importers sell rupees to buy dollars, thus driving down the value of the rupee.
Inflation
Inflation has been a significant problem in Pakistan. High inflation erodes the purchasing power of the local currency. When prices of goods and services in Pakistan rise rapidly, the value of the rupee decreases. As a result, investors and foreign traders may be less willing to hold rupees, and they may demand more stable currencies like the US dollar. This shift in preference further weakens the rupee against the dollar. In some years, Pakistan has experienced double – digit inflation rates, which have had a profound impact on the exchange rate.
Factors Driving the Dollar’s Rise Against the Pakistani Rupe
Fiscal Deficit
The Pakistani government often runs a fiscal deficit, meaning it spends more money than it collects in revenues. To finance this deficit, the government may resort to borrowing, both domestically and externally. External borrowing usually involves taking loans in foreign currencies, mainly US dollars. As the government needs to repay these loans in dollars in the future, it increases the demand for dollars in the market. Additionally, a large fiscal deficit can signal economic instability to international investors, leading them to withdraw their investments or demand higher returns, which also puts pressure on the local currency.
US Monetary Policy
The monetary policy decisions of the US Federal Reserve have a significant impact on the global foreign exchange market, including the dollar – Pakistani rupee exchange rate. When the Federal Reserve raises interest rates, as it has done in the past to control inflation or stimulate the economy, it makes US – denominated assets more attractive. Foreign investors, including those in Pakistan, may choose to invest more in the US, either in government bonds or other financial instruments. This increased investment in the US leads to a higher demand for US dollars, as investors need to convert their local currencies, such as the Pakistani rupee, into dollars. As a result, the dollar strengthens against the rupee.
Global Economic Uncertainty
In times of global economic uncertainty, the US dollar often acts as a safe – haven currency. Events such as global recessions, geopolitical tensions, or financial crises make investors seek the relative stability of the US dollar. Pakistan, being an emerging economy, is not immune to these global trends. For example, during the 2008 global financial crisis, the Pakistani rupee depreciated significantly against the dollar as investors fled to the safety of the dollar. Even in more recent times, with geopolitical tensions in different parts of the world, the dollar has seen an influx of investment, strengthening it against the rupee.
Political and Geopolitical Factors in Pakistan
Political Instability
Political instability in Pakistan has had a negative impact on the country’s currency. Frequent changes in government, political unrest, and uncertainty regarding economic policies can create a sense of insecurity among investors. Both domestic and foreign investors may be reluctant to invest in Pakistan or may even withdraw their existing investments. This leads to a decrease in the inflow of foreign capital, which in turn reduces the demand for the Pakistani rupee. At the same time, the need for capital flight may increase the demand for dollars, causing the rupee to depreciate further.
Geopolitical Tensions
Pakistan’s geopolitical situation also plays a role. Tensions in the region, such as those related to border disputes or security concerns, can affect the country’s economic stability. These tensions can disrupt trade routes, reduce foreign investment, and increase the cost of doing business. All these factors contribute to a weakening of the Pakistani rupee against the US dollar.
Conclusion
The rise of the dollar against the Pakistani rupee is a complex phenomenon driven by a combination of macroeconomic, global, political, and geopolitical factors. Pakistan’s persistent trade deficit, high inflation, fiscal deficit, political instability, and global economic trends all contribute to the weakening of the rupee. The impact of this exchange rate movement is far – reaching, affecting the country’s economy, inflation, debt – servicing ability, and the living standards of its people.
To address this issue, Pakistan needs to implement a comprehensive set of economic reforms, improve fiscal management, and strengthen its institutions. By boosting exports, reducing imports, managing its debt, and promoting good governance, Pakistan can work towards stabilizing its currency and achieving sustainable economic growth. However, these solutions will require long – term commitment, political will, and effective implementation to bring about a positive change in the dollar – Pakistani rupee exchange rate and the overall economic situation of the country.
Related topics
