The Pakistani rupee is an important currency in central Asia due to Pakistan's history as a stable and developing economy, along with the country's geopolitical significance in the region. The rupee is symbolised by Rs and has a currency code of PKR. There is Rs2.6 trillion in circulation (as of this writing in February 2016), and approximately US$300 million in Pakistani rupees is traded daily on the country's foreign exchange market.
The currency is regulated by the State Bank of Pakistan, the country's central bank. Single rupees are issued as coins, and the currency has banknotes of Rs10, Rs20, Rs50, Rs100, Rs500, Rs1000 and Rs5000. They feature images of Pakistan's founder, Quaid-e-Azam Muhammad Ali Jinnah, on one side and images of Pakistani cultural icons and landscape features on the other.
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The History Of The Pakistani Rupee
There is evidence that the area that is now Pakistan has been inhabited for at least 300,000 years, and possibly longer. The first evidence of permanent human settlements in the region, however, dates back 9,000 years to the Mehrgarh culture and later to the Indus Valley civilisation that took hold in the area around 3,300 B.C. From about 1,500 B.C. forward, the area was successively controlled by early Hindu, Persian and Greek rulers. From about 700 A.D. forward, a number of Muslim and Hindu rulers controlled the area until the British took over the region of South Asia starting from around 1750.
Some of the earliest coins in the South Asia region, which includes what is now India, Pakistan and Bangladesh, were known as "Rupa" since sixth-century B.C. Texts from the reign of Indian emperor Chandragupta Maurya in fourth-century B.C. refer to "rupyarupa," or silver-wrought coins with symbols. Some ten centuries later in 1540, the Islamic ruler in the region, Sultan Sher Shah Suri, issued a silver coin with a standardised weight called a "rupiya." The original coin weighed 11 grams and was issued with sub-currency units of 16 "annas," 64 "paise" and 192 "pies."
This coin remained in usage into the British occupation of South Asia in the 1700s, which became known as the British Raj. It was in this period, with the establishment of banks such as the Bank of Hindustan and the Bengal Bank, when paper currency denominated in rupees was first issued. The rupee, from its first minting some 300 years earlier, had been issued and backed by silver. The discovery of large quantities of silver in the U.S. and elsewhere around the world had a dampening effect on the value of the currency. In 1898, the government of the Raj adopted the gold standard, fixing the rupee to the British pound at a rate of 15 to 1.
In 1935, the government of the Raj established a central bank, the Reserve Bank of India in Calcutta, which had the responsibility of issuing banknotes. The notes, which featured the image of Britain's King George VI, were initially issued in 1938 in denominations between 10 and 10,000.
During the Second World War, the bank issued a one-rupee note. In 1947, the region of Pakistan broke off from India and gained independence from Britain under a plan aimed at separating the territories of South Asia that had Muslim and Hindu majorities. Pakistan was created as a homeland for the Muslim majority of the northern portion of the region while India became the homeland for the Hindu majority there. Initially, Indian banknotes circulating in Pakistan were simply stamped with the word Pakistan, but soon after the country issued its own banknotes.
Upon its independence, Pakistan remained a part of the so-called Sterling Area of nations that pegged their currencies to the British pound. The Pakistani rupee was pegged directly to the British pound until 1982, when the government began a managed float of the currency.
Pakistan's monetary policy is carried out by the State Bank of Pakistan's nine-member monetary policy committee. The creation of the committee was authorised in November 2015 by an amendment to the State Bank of Pakistan Act, and it held its first meeting in January 2016.
The State Bank of Pakistan ("SBP") has traditionally established a target for the country's M2 aggregate monetary supply as a manner to achieve growth and inflation objectives. To execute monetary policy, the SBP has set an interest rate corridor using its repurchase rate, or "repo rate," as a floor and its reverse repo rate as a ceiling.
Economy of Pakistan
Pakistan's economy is the 27th-largest in the world, according to GDP. In the decades following its independence, Pakistan showed strong growth of more than 5% annually. More recently, however, internal political disputes and low levels of foreign investment have led to slower growth and underdevelopment in the country.
Pakistan's major industries include textiles and apparel, food processing, pharmaceuticals, construction materials, paper products, fertiliser and shrimp harvesting. Its top exports are textiles, rice, leather goods, sporting goods, chemicals and manufactures, among others. The country's main trade partners include China, the U.S., Saudi Arabia, United Arab Emirates, Kuwait, Afghanistan, U.K., Germany and India.
Agriculture accounts for more than one-fourth of the economy's output and about 40% of employment, while textiles account for much of Pakistan's export revenue. Pakistan holds trade agreements with China, Malaysia, Sri Lanka and the ASEAN group of nations. It has also held talks on agreements with both the EU and the U.S.
In addition to its commercial significance, Pakistan has drawn global attention as one of only nine nations in the world to hold nuclear weapons technology, which it began to develop aggressively in 1972 in response to its defeat in the Indo-Pakistani war. The country made its first test of a nuclear weapon in 1984.
Foreign exchange and financial trading in Pakistan are regulated by the Ministry of Finance, the State Bank of Pakistan, and the Securities and Exchange Commission of Pakistan. Important legislation related to financial trading in the country includes the Bank Company Ordinance of 1962, the Negotiable Instruments Act of 1881, the State Bank of Pakistan Act of 1956, the Foreign Exchange Manual, the Financial Institutions Ordinance of 2001, and prudential regulations.
Major Pakistani Rupee Currency Pairs
The Pakistani rupee is commonly traded in pairs with major world and Asian currencies, including USD, BRL, CAD, AUD, EUR, GBP, JPY, CNY, INR and RUB.
Pakistani Rupee Bills And Coins
Since its introduction, the Pakistani rupee has been issued as coins and cotton-based paper money. Pakistan's currency is printed by the Pakistan Security Printing Corporation under authority of the Ministry of Finance. Coins are manufactured at the Pakistan Mint, which is also subordinated to the government. Coins in current use include Rs1, Rs2 and Rs5.
The Pakistani Rupee Around The World
The Pakistani rupee has gained significance due to the country's strong trade ties with both key Western and Asian economies. In the last decade, the country has negotiated currency swap agreements with countries such as China, Turkey, Russia and Sri Lanka to facilitate trade and currency exchange. Pakistan is also one of the world's largest destinations and origins for currency remittances from workers residing outside of the country's borders, averaging around US$1 billion per month.
Where Is The Rupee Today?
Despite a diversified economy and industrial sector, growth and activity in the country have lagged in recent years. In particular, the global financial crisis beginning in the last decade brought difficulties for the country's economy.
Official unemployment has hovered around 7.0%, and informal employment and underemployment remain high. As a result of political and macroeconomic instability, the Pakistani rupee has depreciated more than 40% since 2007.
In November 2008, the Pakistani government agreed to an International Monetary Fund standby loan to prevent a balance of payments crisis. However, the deal was ended early because of Pakistan's failure to implement required economic reforms.
Although the economy has improved, it continues to underperform and foreign investment has not returned to levels seen during the mid-2000s. This is due to concerns related to corporate governance, electricity shortages and a sluggish global economy. Pakistan's current account turned to a deficit where it remained through 2014, spurred by higher prices for imported oil and lower prices for exported cotton.
Despite resuming an agreement with the IMF and receiving a favourable appraisal from the institution, economists note Pakistan has remained stuck in a low-income, low-growth cycle, with growth averaging about 3.5% per year between 2008 and 2014. In particular, the country continues to face issues related to government revenues and the electricity and natural gas sectors. These issues restrict economic growth needed to create jobs for a growing and urbanising population, more than half of which is under adult age.
Additionally, Pakistan faces challenges to expanding investment in healthcare and education, adapting to problems brought by natural disasters, and reducing dependence on donations from foreign countries.
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Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…