Pakistan officially introduced its currency, the Pakistani Rupee i.e. PKR. This step was the first significant change for Pakistan towards establishing its economic identity.
In 1947, Pakistan was created following the partition of British India. At that time, the value of the Indian Rupee (INR) and the Pakistani Rupee (PKR) were equivalent. That is, 1 Indian Rupee = 1 Pakistani Rupee. At that time, very few would have imagined that, over time, the difference in the value of both currencies would become so significant. Today, the value of one Indian Rupee is approximately equivalent to 3.22 Pakistani Rupees.
What Led To Deterioration In Pakistani Rupee Against India
Have you ever wondered how the currencies of India and Pakistan, which were once similar, have become so distinct today? What were the decisions, crises and circumstances that gave a completely different direction to the economic direction of both countries?ย
It is not just a matter of currency or exchange rate; rather, it is the result of history, policies, and the thought process of the people in these countries. To understand this, let’s take a look at the past. According to Laxmii Forex, the foundation of the currency system of India and Pakistan was based on the British Indian currency system. After the partition, Pakistan did not immediately issue its currency.
For the first few months of independence, Pakistan used the Indian currency, which was stamped with the seal of the Government of Pakistan. After some time, Pakistan officially introduced its currency, the Pakistani Rupee, i.e. PKR. This step was the first significant change for Pakistan towards establishing its economic identity. Hereafter, the financial conditions of both countries began to change.
After gaining independence from the British, India worked on building a diversified economy by focusing on agriculture and heavy industry and later on IT and service sectors. Following the economic reforms of 1991, India opened its doors to the global market. It attracted foreign investment and improved exports, resulting in a strengthening of the Indian Rupee’s position.
Pakistan Caught In Debt Trap
One of the biggest reasons for the widening gap between the currencies of India and Pakistan was the former’s attitude of constantly taking loans. Pakistan took loans from the International Monetary Fund several times to deal with the economic crisis. But this has also proved to be a hindrance in moving forward, because you also have to pay interest.ย
India also borrowed in the past, but since the 1990s, India has worked to reduce its reliance on debt and focused on economic growth through production, exports and foreign investment. This change has helped keep the Indian Rupee stable, while the Pakistani Rupee has continued to fall.
Inflation And Falling Currency Strength
Inflation means the increase in the price of goods and services over time. If a country has persistent high inflation, the purchasing power of its currency decreases. In Pakistan, the prices of basic commodities have risen rapidly over the last few decades, weakening the country’s international and domestic currency strength. India has also experienced inflation, but it has been kept under control to a great extent over the last few decades. As a result, the Indian Rupee did not lose its value as quickly as the Pakistani Rupee.