The Pakistani rupee has been on the decline lately, with no end in sight to its downward spiral. Today, one US dollar will buy you nearly 210 rupees, compared to just 115 rupees at the beginning of 2020. Why has the value of Pakistan’s currency dropped so much in such a short time? What does this mean for US investors? And what can you do to keep yourself financially safe during these uncertain times? Let’s take a closer look at the devaluation of the Pakistani rupee and what it means to you as an investor in both Pakistani and US securities.
How the Economic Slowdown is Affecting Pakistan
The economic slowdown has caused Pakistan’s currency to decline by as much as 10% in just one month. As of December 2017, one US dollar was worth around Rs124. This trend will likely continue throughout 2018, since experts predict that Pakistan’s economy will only show negative growth during that year. The declining value of Pakistan’s currency means that it will be more expensive for you to buy imported goods from other countries, which makes imported products like food more expensive (or out of reach altogether). To make matters worse, it also means local prices for exports are lower than normal. Lower prices for exported goods means less revenue for local companies and people—but more opportunities for international investors. If you want to protect your assets against these trends, then consider investing in a high-quality foreign exchange account. A good FX account can help smooth out fluctuations in currency values so your assets stay stable over time. For example, if your foreign investment portfolio is currently denominated in dollars but you want to diversify into rupees or another Asian currency, then a multi-currency account can help with that too! If you’re interested in learning more about how a good FX account can help protect your assets during these challenging times, contact us today at [email protected] or call +1 646 835 0011. We look forward to hearing from you!
What Caused This Economic Slowdown?
With US dollars rapidly depleting in value thanks to record-breaking Federal Reserve quantitative easing, investors all over Asia have begun questioning just how long their financial situation can hold up. The answer: not for much longer. Since March 2022, Pakistan's rupee has lost 25% of its value against its U.S. counterpart, going from Rs 150 per dollar to Rs 210 per dollar today. As a result, prices are rising quickly across the country. If you live in Pakistan, it’s important that you know what caused your economic slowdown so that you can plan accordingly moving forward. Here are some possible reasons why:
: Greed - This one’s easy – people were greedy! All across Asia (and many other parts of the world), there was an over-reliance on dollar denominated assets (like stocks) as opposed to local currency denominated assets (like bonds). When stock markets started dropping around March 2022 and people realized they could no longer afford to purchase stocks at their previous pace, they looked elsewhere for investments...which meant investing heavily into dollars themselves!
The Effects of this Economic Slowdown
One reason many Pakistanis are moving their savings into dollar-denominated assets such as U.S. Treasury notes, other government bonds, and real estate in America or Canada is that they feel more secure with a stable asset than they do with rupees. While a falling rupee may seem like it would make imports cheaper, that's not necessarily true: prices of certain items become fixed (or pegged) in dollars or euros so they don't change no matter what happens to your currency. When those prices rise—because you're importing them from countries with stronger currencies—the total cost to you will be greater if your rupees are worth less than before. For example, even though oil prices have dropped by half since June 2014, gasoline prices in Pakistan have gone up by nearly 20 percent because they're still pegged to higher oil prices. If Pakistan's economy remains weak for an extended period of time, we could see even higher inflation rates.
The Importance of Keeping Your Money Safe: Another big reason why people are buying dollars is because they want to keep their money safe from corruption and mismanagement by politicians and bureaucrats back home. If you've read about some of our recent political scandals here in America, then you know how important it can be to invest your money where politicians can't touch it.
5 Major Takeaways From This Article
The Pakistani Rupee has dropped roughly 10% against the U.S. dollar since 2016. The decline in value can be explained, at least partially, by events out of Pakistan's control, such as weak oil prices worldwide and an oversupply of dollars around the world due to China's recent economic slowdown. Other factors—such as a global market sell-off in response to expected rate hikes from central banks around the world—have also contributed to Pakistan's weakening currency. However, there are actions you can take today to protect yourself from a drop in your own purchasing power. If you're looking for a way to hedge against a falling dollar, investing in gold or silver bullion might be one option for you. You could also consider taking advantage of exchange-traded funds (ETFs) that track currencies like those found in South America or Asia, which tend to move less dramatically than their counterparts in North America and Europe. One final option would be to diversify into other asset classes like stocks or bonds that aren't based on foreign currencies but instead track other metrics like corporate earnings or interest rates. If you want more information about how these strategies work before deciding which one is right for your portfolio, contact us today! We're happy to discuss our recommendations with anyone who needs help getting started with their investments.
When thinking about why dollars are worth more dollars, it’s helpful to review some common causes behind currency declines and inflation. For example, weaker demand for goods typically leads to rising unemployment, leading households and businesses to spend less money overall. With fewer people buying products and services in an economy, businesses lose revenue and may respond by cutting production costs through layoffs or reductions in salaries. Lower salaries mean lower spending levels throughout all segments of society as workers now have less disposable income available for consumption after paying taxes on their higher wages during good times.
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