{"id":193723,"date":"2022-07-02T20:27:04","date_gmt":"2022-07-02T14:57:04","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=193723"},"modified":"2022-07-02T20:27:48","modified_gmt":"2022-07-02T14:57:48","slug":"the-rupees-new-lows-why-its-not-necessarily-a-cause-for-concern","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/the-rupees-new-lows-why-its-not-necessarily-a-cause-for-concern\/","title":{"rendered":"The rupee’s ‘new lows’: Why it’s not necessarily a cause for concern"},"content":{"rendered":"\n<\/div>\n

News<\/strong>: The currency\u2019s fall gets more attention than its rise. At present, the Indian rupee is falling against the US dollar.<\/p>\n

What is the status of the Rupee fall vis a vis other currencies?<\/h5>\n

The Finance Minister has recently pointed out that almost all currencies are falling against the dollar, and the rupee has fallen less than most. For instance, Rupee fell 6% in the first half of 2022. Compared to that, the euro has fallen by 11.6%, the yen by 19.2%, and the pound by 13.2%.<\/p>\n

China\u2019s yuan has fallen less (3.6%), but the currencies of Australia, South Korea, and of course Pakistan have fallen more.<\/p>\n

Actually, the rupee has moved up against almost all currencies<\/strong>.<\/p>\n\n\n\n
Read more: RBI Report on Currency and Finance \u2013 Explained, pointwise<\/a><\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
What is the long-term cause-and-effect relationship between country and currency?<\/h5>\n

Many people tend to get wrong about the long-term cause-and-effect relationship between country and currency. The present government came into office in favour of a \u201cstrong currency\u201d policy<\/strong>.<\/p>\n

However, such policy ignores that almost every country with a successful long-term record of development (Japan and China being among the best examples) has pursued a \u201cweak currency\u201d policy<\/strong> in order to win export markets. In reality, A strengthening economy gets a strengthening currency, helped along by capital flows.<\/p>\n

A weak economy, or one with high inflation, does not become strong if the country artificially boost its currency, or keeps it pegged too high. Such a policy would not be sustainable and would risk capital flowing out.<\/p>\n

For example, At the stage of development, if a country can\u2019t compete on technology or product quality then the country can compete primarily on price. In such situations, a weak currency helps. Over time, as exports gain momentum and the economy achieves external viability, the currency reverses its decline.<\/p>\n

How does India maintain its long-term cause-and-effect relationship between country and currency?<\/h5>\n

As for trade, over more than four decades (including the years of Nehru\u2019s atmanirbharta), India kept the rupee over-valued<\/strong>. So, while countries in East Asia boosted their trade, India\u2019s share of the global trade total<\/strong> collapsed by 80%\u2013 from about 2.5% in 1947 to about 0.5%.<\/p>\n

India\u2019s trade and inflation record improved after its currency and other policies became more market-oriented in and after 1991. However, India yet has run a trade deficit in most years despite the rupee\u2019s continuous fall. This shows the reform done so far is not enough.<\/p>\n

What should be done?<\/h5>\n

Reserve Bank to spend billions of dollars to boost the rupee is the wrong way. If India wants a stronger rupee, then India needs to do a better job of managing the economy <\/strong>such as Inflation control, productivity improvement, etc<\/strong>.<\/p>\n

Recently, inflation rates are rising. It is natural that this loss in the rupee\u2019s domestic purchasing power should get reflected in a lower exchange rate. Change the performance metrics and the rupee will hold its own without the Reserve Bank having to intervene.<\/p>\n

Source<\/strong>: The post is based on the article\u00a0\u201cThe rupee’s ‘new lows’: Why it’s not necessarily a cause for concern\u201d <\/strong>published in\u00a0\u201cBusiness Standard\u201d<\/strong> on 2nd<\/sup>\u00a0July 2022<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"

News: The currency\u2019s fall gets more attention than its rise. At present, the Indian rupee is falling against the US dollar. What is the status of the Rupee fall vis a vis other currencies? The Finance Minister has recently pointed out that almost all currencies are falling against the dollar, and the rupee has fallen… Continue reading The rupee’s ‘new lows’: Why it’s not necessarily a cause for concern<\/span><\/a><\/p>\n","protected":false},"author":10311,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[10503,212],"class_list":["post-193723","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-business-standard","tag-gs-paper-2","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704723287},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/193723","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10311"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=193723"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/193723\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=193723"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=193723"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=193723"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}