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Rupee vs Rupee — how Pakistan and India’s currencies have fared against the USD since 1947

Despite starting out stronger, PKR’s value has plummeted while INR has become Asia’s “least volatile currency”

Rupee vs Rupee — how Pakistan and India’s currencies have fared against the USD since 1947

Despite starting out stronger, PKR’s value has plummeted while INR has become Asia’s “least volatile currency”

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Did you know there was a time you could get one US dollar for less than PKR 5? And the Pakistani rupee was stronger than the Indian rupee?

After the PKR’s tumultuous downward spiral in the last two fiscal years, it feels like an impossibility that it was ever that strong.

And yet, when the country came into being, one dollar could be bought for PKR 3.31 and INR 4.16.

The Pakistani rupee’s value remained the same till 1956 when the PKR and INR reached parity at 4.76.

So, what led to this initial decline?

1950-1960

While the currencies first reached parity at 3.31 in 1948, the INR gradually declined to 4.76 in 1950 and remained there for the rest of the decade.

On the other hand, the PKR was consistent at 3.31 till 1955 when it depreciated to 3.91. The next year, it declined further and reached parity with the INR at 4.76.

The primary reason behind the PKR’s decline was political instability. While India’s Constitution had already come into effect in 1950, it took Pakistan till 1956 to introduce its first Constitution.

However, it was fiercely opposed by some political parties, including the Awami League, and hence, failed to bring much-needed political stability. Two years after the Constitution’s promulgation, Pakistan’s then-President Iskandar Ali Mirza was removed from office and the country’s first martial law was imposed.

1961-1970

The PKR-INR parity was broken in 1966, with the Indian currency falling to 6.36 against the dollar. By the end of the decade, the INR’s value had declined to 7.50 while the PKR remained at 4.76.

The reason for the INR’s decline was three-fold — the war with China in 1962, the war with Pakistan in 1965, and a drought in 1965-1966, which reduced grain production by a fifth and increased the country’s food import bill significantly.

Meanwhile, it was a ‘golden era’ for Pakistan’s economy, which started growing at a rate of over 5% per year. This was much higher than other underdeveloped countries, including its neighbors. Then-Field Marshal General Ayub Khan introduced economic plans that spurred industrialization and exports started rising by over 7% per year.

Separately, Pakistan developed a strong alliance with the United States. Through agreements such as the Mutual Defense Assistance Agreement and participation in military alliances like SEATO and CENTO, Pakistan received substantial military and economic aid from the US. This aid supported development projects and helped finance imports, contributing to currency stability.

1971-1980

The PKR became weaker than the INR for the first time in 1972, following the war.

From 4.76 per dollar in 1971, the PKR dropped to 11.01 in 1972, and ended the decade at 9.99.

During this time, another martial law was imposed by General Zia ul Haq in 1977, which caused political instability — a recurring problem for Pakistan’s economy.

Meanwhile, the INR was being traded at 7.86 per dollar by 1980.

1981-1990

Pakistan’s currency remained weaker than India’s throughout this decade despite the influx of dollars for the Afghan Jihad.

Meanwhile, India’s currency also continued to decline gradually as its trade deficit increased and rising oil prices put pressure on its foreign exchange reserves.

In 1990, the PKR was worth 20.9 per dollar while the INR was 16.43 per dollar.

1991-2000

Things finally started turning around for the PKR in the 1990s, even as successive governments were unable to complete their term.

In 1992, the PKR rose above the INR to trade at 25.05 per dollar while the neighboring currency was valued at 28.8.

However, by 1997, the PKR was again weaker than the INR, and has remained so till date.

Meanwhile, the INR’s value went from 17.45 in 1990 to 21.08 in 1991 to 44.68 in 2000. The reason for the currency’s sharp depreciation at the start of the decade was India’s liberalization reforms, which ultimately led to massive economic improvement.

In 1991, India was facing its worst economic crisis and was on the brink of default. Under reforms introduced by then-finance minister Manmohan Singh, the Indian currency was devalued by 9% on July 1, 1991 and another 11% two days later.

The move was aimed at making Indian exports more competitive and was accompanied by the removal of trade barriers, including making investment easier.

By the end of the decade, however, both currencies’ value had declined significantly as they were sanctioned by the global community for nuclear tests, and martial law was once again imposed in Pakistan by General Pervez Musharraf.

2001-2010

The PKR continued to decline throughout this decade, going down from 63.85 in 2001 to 85.54 in 2010.

At the start, the PKR’s value tumbled as Gen Musharraf struggled to build legitimacy and recognition globally.

However, the US’ War on Terror brought Pakistan back into the mainstream and dollar inflows stabilized the exchange rate.

This lasted till 2007 when Gen Musharraf imposed an emergency and removed the then-chief justice of the country. The move led to widespread protests and political instability, which resulted in the rupee’s value declining rapidly.

Some semblance of stability was restored by the decade’s end when Gen Musharraf started talks with Benazir Bhutto and allowed Nawaz Sharif and Shehbaz Sharif to return from exile.

Meanwhile, India’s economic reforms started yielding results and the INR remained stable — it went from 47.04 in 2001 to 46.45 in 2010.

2011-2020

The PKR depreciated sharply during this decade, declining from 85.97 in 2011 to 168.05 in 2020.

There were several reasons for this: political instability — no prime minister has ever completed a five-year term — deteriorating security situation, poor economic management, widening current account and fiscal deficits leading to burdening external debt and low exports which continued to put pressure on the PKR.

On the other hand, the INR also depreciated from 44.7 in 2011 to 75.51 in 2020.

This was primarily because of the 2010 global recession, which saw outflows of foreign investment from India, a decline in remittances, and reduced demand for its exports. The country also had a widening trade deficit and high inflation.

Both currencies were also affected by the COVID-19 pandemic as economies the world over struggled with challenges, including low growth and trade restrictions due to lockdowns.

2021-2024

The PKR has continued to decline in recent years amid low foreign exchange reserves and prevailing political and economic uncertainty, which peaked last year on concerns that Pakistan would default.

The previous government attempted to stop the rupee’s depreciation by imposing an artificial cap on the exchange rate. However, once this cap was lifted, the PKR fell by a record 24.54 in the interbank market on Jan 26, 2023.

It started stabilizing once Pakistan reached an agreement with the International Monetary Fund (IMF) on a crucial bailout that averted the risk of default.

At the end of FY23, the PKR was valued at 285.99 per dollar.

The PKR remained volatile in FY24, falling below the 300-mark due to the wide gap between rates in the interbank and open markets and the emergence of a flourishing grey market.

However, the situation improved following the government’s recent crackdown against smuggling and illicit trade and subsequent measures that included reforming exchange companies.

The PKR ended FY24 at 278.34 per dollar, appreciating by 2.67%.

Pakistan has recently reached an agreement with the IMF for a new loan facility for 37 months. The new loan along with funding from other multilateral and bilateral sources will shore up the country’s foreign exchange reserves and protect the PKR from rapid devaluation.

Pakistan Finance Minister Muhammad Aurangzeb stated earlier this year that the government does not expect any major devaluation.

Meanwhile, the INR also depreciated to 83.39 per dollar at the end of FY24. However, this wasn’t a radical decline from FY23’s 82.04.

A Bloomberg report earlier this year termed the INR “Asia’s least volatile currency”.

In the spiral downwards, it appears that Pakistan may again be the unfortunate winner in the current fiscal year.

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