US Dollar at All Time High

December 14, 2023 | Investopaper

The US dollar has reached unprecedented levels. Nepal Rastra Bank (NRB) has set an exchange rate of Rs 133.75 per US dollar for Thursday. This is an all-time high exchange rate of dollar as compared to Nepali Rupees. 

In recent periods, the exchange rate of the US dollar against the Nepalese currency has been steadily rising. The dollar has risen by more than Rs 31 in the last six years. In December 2017, the price of one dollar was only 102 rupees.

The ascent of the US dollar is intertwined with the depreciation of the Indian currency, impacting the value of the Nepalese rupee. A fixed exchange rate exists between the Nepali Rupees (NRs.) and Indian Rupees (IRs), where 160 Nepalese rupees equate to 100 Indian rupees.

Along with fixed exchange rate, a large part of Nepal’s total foreign trade is dependent on India. Therefore, Nepali Rupees (NRs.) is also directly affected when the exchange rate of the Indian rupee fluctuates. This dynamic makes the Nepali rupee vulnerable to fluctuations in the Indian currency, particularly during periods of depreciation.

This escalation in the dollar’s value carries both benefits and drawbacks for Nepal’s economy.

When the dollar strengthens, the inflow of remittances increases. Likewise, stronger dollar also has a positive effect on foreign direct investment (FDI). Export-oriented industries stand to gain as well, as the appreciation of the dollar could bolster trade profitability. However, Nepal’s export potential is constrained by limited goods and services, minimizing the potential benefits of the exchange rate shift. Furthermore, tourism-related earnings, including revenue from exports and the handicrafts sector, stand to improve.

However, the surge in the dollar’s value holds the potential to amplify Nepal’s existing economic challenges. The country’s heavy reliance on imports means that foreign currency-denominated goods and services become more expensive. The resultant cost pressure from expensive imported goods is likely to manifest as price hikes.

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