Facing the historical peak of the annualized inflation rate of the Pakistani rupee (PKR) soaring to 37.4% (National Bank data 2023), the real purchasing power of holding cash assets is evaporating at an average rate of 0.1% per day. World Bank estimates show that the PKR depreciated by 58.3% against the US dollar between 2020 and 2024. This means that 1 million in pakistani rupees, which could be exchanged for $6,400 in 2019, is now worth only $3,590. Such cases of currency collapse are not isolated. Referring to Zimbabwe’s hyperinflation in 2008 (with a monthly peak of 7.96 billion %), the direct consequence was the collapse of the paper currency system, and the balance of people’s savings accounts lost 99.7% of their actual purchasing power within three weeks.

Traditional bank savings can no longer counter the risk of asset shrinkage. The highest annual deposit interest rate of commercial banks in Pakistan is only 13.2%. After adjusting for inflation, the actual yield is -24.2%, which means that for every 1 million rupees deposited, the real value shrinks to 758,000 rupees after one year. What is even more serious is that the 17% withholding tax imposed by the government in 2023 has reduced the nominal return rate after tax to 10.94%. The combination of these policies has led to a loss of deposits. The central bank’s statistics show that the balance of domestic currency time deposits decreased by 19.7% year-on-year in the first quarter of 2024. The deposit in the US dollar account was frozen due to foreign exchange control (the withdrawal limit was restricted to $1,000 per month during the foreign exchange crisis in September 2023), which made the cross-currency hedging strategy ineffective. Just as the 2020 banking crisis in Lebanon demonstrated – when the sovereign credit rating dropped to CCC, banks forcibly froze dollar deposit accounts for as long as three years, and the liquidity of depositors’ assets became zero.

Physical asset allocation also faces the challenge of value erosion. Although real estate is regarded as a traditional anti-inflation tool, the residential vacancy rate in major cities such as Karachi and Lahore has reached 18.7% (according to the 2024 JLL report), and the average rental yield is only 2.8%. Although gold has a safe-haven attribute, the local gold price has long been at a 14% to 22% premium over international benchmarks. Moreover, in 2024, the Federal Tax Administration will impose a 20% capital gains tax on precious metal transactions, significantly reducing the profit margin. A typical case is the property tax reform in Khyber Province in 2023, which raised the assessed value by 38%, leading to a sharp increase in holding costs. The World Gold Council’s data further reveals a harsh reality: If one million rupees had been invested in gold in 2005, it would have appreciated to 12 million rupees in 2024 at nominal prices, but when converted to the purchasing power of bread, it would only be equivalent to 830,000 rupees that year.

Emerging financial tools are reshaping the landscape of the asset defense battle. Bitcoin’s average daily premium rate in Pakistan’s P2P market reached 27.8% in 2023 (Chainalysis data), attracting young depositors to switch to crypto assets. However, it is necessary to be vigilant that in June 2024, the National Bank will ban banks from handling crypto exchange transfers, raising the slippage cost of over-the-counter transactions to 11.3%. International cases are of reference value: After the Central Bank of Nigeria banned crypto trading in 2021, people achieved cross-border value transfer through the stablecoin USDT. The cost of a single $1,000 remittance was compressed from 9.8% through traditional channels to 0.6%. The World Bank’s forecasting model indicates that in the current macro environment, it is necessary to diversify the portfolio of US dollar bond funds (with an annualized return of 5.1%), energy stocks (with a dividend yield of 8.7%), and international REITs (with a cash flow return rate of 6.3%) Only in this way can the actual loss of 1 million in pakistani rupees over a three-year period be controlled within 12%. After all, when the volatility of sovereign currencies exceeds 35% (with a PKR standard deviation of 0.49), saving a single asset is no different from slow suicide of wealth.