Why is the US Dollar more valuable than NPR?
If you want to understand why some currencies like NPR are significantly less valuable than let’s say USD in this case. You will have to understand the monetary needs, interests & economic history of USA are different from that of Nepal.
All around the world there are 180 currencies circulating in 197 countries. There was a time when $1 USD = NPR 74.5739 . That was on Friday 1 January of 2010 which is not the case right now. (Source: exchangerates.org.uk )
The value of USD has increased by 77.6% in 12 years against NPR. Let’s look at the following table to better understand the value of USD against NPR from 2010 to 2023.
| Date | US Dollar to Nepalese Rupee Exchange Rates |
| Friday 1 January 2010 | $1 USD = ₨ 74.5739 |
| Saturday 1 January 2011 | $1 USD = ₨ 71.8475 |
| Sunday 1 January 2012 | $1 USD = ₨ 85.6102 |
| Tuesday 1 January 2013 | $1 USD = ₨ 87.6939 |
| Wednesday 1 January 2014 | $1 USD = ₨ 99.0526 |
| Thursday 1 January 2015 | $1 USD = ₨ 101.2719 |
| Friday 1 January 2016 | $1 USD = ₨ 106.0094 |
| Sunday 1 January 2017 | $1 USD = ₨ 108.8812 |
| Monday 1 January 2018 | $1 USD = ₨ 102.0237 |
| Tuesday 1 January 2019 | $1 USD = ₨ 111.3614 |
| Wednesday 1 January 2020 | $1 USD = ₨ 114.8041 |
| Friday 1 January 2021 | $1 USD = ₨ 117.4887 |
| Saturday 1 January 2022 | $1 USD = ₨ 118.9896 |
| Sunday 1 January 2023 | $1 USD = ₨ 132.1175 |
So, If you went to buy imported candy let’s say mentos in 2010 vs 2023 in Nepal. It would be approximately double the cost considering tax, shipping and other factors affecting the value of product. I clearly remember when I could buy mentos at 1 NPR per piece, but now I only get 7 pieces per pack for NPR 20.
There are many factors affecting the value of currency at a given moment of time in the forex market, but the following are the major factors.
( The foreign exchange market or forex market is the market where currencies are traded. The forex market is the world’s largest financial market where trillions are traded daily. )
- Supply & Demand
Just like in the stock market there is a place to buy and sell currencies. Which is the forex exchange market. Value of currency increases when lots of people want it and decreases when people don’t want it. Similarly if there is a lot of particular currency lying around in the market it’s value will go down, just like when it’s value will go up if there is not much of it.
Following is a simple diagram to understand how supply and demand affect price and quality.
- Attractiveness to Investors
Countries like the US and Japan have stable political and economic conditions. Thus, if an investor wants to invest his money hoping to get profit, it will be in these counties. For example in a country like Nepal where there is no stability politically and policy wise, one would think twice or even thrice because the risk of investment is significantly higher. But how does this affect the currency value? Well you see if you want to invest in another country you will need that country currency to invest. Thus demand of currency increases and so does its value as mentioned in above point.
The opposite is also true, take the example from history when the UK decided to leave the European union. Since there was uncertainty about what will happen to the UK. The price of the Sterling pound fell. (Source: www.world101.cfr.org )
- Price of certain commodities (such as oil)
Commodities such oil can make up larger chunks of an economy. For example Canada, where if anyone wants to buy oil from Canada they will have to pay in Canadian Dollar. And when the price of oil increases globally, buyers will also need more Canadian Dollar to purchase oil. Which increases the demand of the currency and drives its value up. Same goes if the price of oil decreases, so does the value of the Canadian dollar.
- Inflation
When a country experiences inflation, it generally means that the purchasing power of their currencies is decreasing. This will result in increased prices of exports, since the value of currency has decreased. Inflation also decrease demand for local goods since local goods will be more expensive to produce.
Inflation is the rate of increase in prices over a given period of time.
( Appreciation = getting stronger = worth more = higher value
Depreciation = getting weaker = worth less = lower value )
That said, inflation is not bad, it is a sign of a healthy growing economy if price is rising (i.e inflation) is 1-2% per year. But there were cases where the inflation has gone out of control, like in Zimbabwe between 2008-2009. Where the inflation was over 100 billion percent.
Buying eggs for 100 billion Zimbabwean dollar note, in July 2008. (Source: Reuters)
With the above points, we see why NPR is less valuable than the US Dollar. The demand of the US dollar is far higher than the NPR. We have also seen that this is because of various factors such as, prices of commodities, attractions of investors, and the US dollar being the most trusted currency globally,sio its value is ever increasing.
All these factors affect the price and when the currency is exchanged in the forex market, the 1 NPR results in 0.0076 US Dollar.
