Tag Archive: Yen

Imagine the Indian rupee having the status of a global currency. This might seem more of a fantasy and less of reality. But this was the picture of the Rupee some 50 years ago. However, the two major financial crises in 1966 and 1991 led to the consequent devaluation of the rupee. In the present scenario, it is no secret that India is achieving robust growth with an average increase of about 9% in its GDP every year. This might lead to the belief that the Rupee must also have been making significant progress. However the reality is quite contrary. It’s astonishing to know that the reason behind this is the Indian government itself. Had the government not interfered, the rupee would have been soaring high as expected. What forced the government and the RBI to suppress the growth of the rupee? Let us see the reasons behind the government’s bizarre actions.

Since the last few years the government has been doing its part to keep the Indian rupee in a low profile. In plain words the Indian government has been preventing it from gaining strength against other currencies especially the U.S. dollar. This is done in order to protect the Indian exporters particularly the IT sector followed by the jewellery and the textile sectors. Since these sectors are the major players in our economy, the government and RBI are keen to control the growth of the Indian rupee. The role of the apex bank is significant in this regard. Stronger rupee will be a severe blow to all the exporting firms. And there is the example of how China spread its goods across the world through the cheap Renminbi.

Several counter arguments have been raised stating that “A strong rupee does not imply weak imports”. The best example to this statement is that of Japan and Germany. During the 70s and 80s, Japan made remarkable progress in its global exports trade while simultaneously Yen gained significantly against the Dollar. High production technology and good quality has been a characteristic of the Japanese goods. Even Germany has been the world’s largest exporter of hi- tech goods despite its strong currency. This feature is however absent in the Chinese goods. It’s disturbing to note that even Indian goods lack this feature. As the rupee gains, the IT sector will be affected to a drastic level as most of the outsourcing jobs by the U.S. are driven by the weak rupee. However, it’s inevitable that for the future growth of any sector, new technology and better quality is the key.

A strong rupee can actually be the solution to this problem when viewed from a different perspective. For one, it would bring down the cost of technology – mainly the capital equipment and raw materials which in turn can produce better exports. This would revolutionize the manufacturing sector in India. But some losses cannot be avoided i.e. those who fail to make a transition from mere cost-arbitrage to a competitiveness driven by technology and quality. However the major firms in the exporting sector will be able to make the transition. The strong belief for this comes from the fact that the people and companies from this country are involved in development of high technology all over the world. It is just an artificially cheap rupee that prevents them from doing the same in their homeland.

Of course, there are several additional benefits to reap from the strong rupee. It will reduce the inflation through cheaper imports of several commodities particularly oil. The Indian government will also be able to issue rupee denominated bonds to foreign investors for infrastructure projects which will in turn help the rupee to regain its lost glory. Half a century ago it was a key currency for trade, spreading from UAE in west to Hong Kong and Malaysia in the east. The rupee was quite strong then, 4.75 to the U.S. dollar compared to the high 40s now.

The government has announced a unique symbol for the rupee (read here). This might mark an end to the era where it tries to erode the strength of the rupee. “Strong symbol implies strong substance”. This should be the future of the Indian rupee.

– Radha Krotthapalli

Evoking national pride and international attention, the Indian rupee attained a new avatar in its new symbol. Backed by over a trillion dollar strong economy, the Rupee is now set to go places and whooping it out loud to the world – the very purpose of giving Indian rupee a distinct and identifiable symbol of it‟s own.

Rupee now joins the elite club of super strong currencies of US Dollar ($), Japanese Yen (¥), British Pound (£) and EU’s Euro (€), having internationally accepted symbols for them. The Indian growth story is very much intact and is growing strength by strength every passing day. And in this context this move is seen as a symbol not only of Indian currency but also of the Indian ambition to regain its lost glory and again become a global superpower.

“It’s a big statement on the Indian currency. It would lend a distinctive character and identity to the currency and further highlight the strength and robustness of the Indian economy as also a favoured destination for global investments,” said Ms. Ambika Soni, Information & Broadcasting Minister, at a Cabinet meeting.

Apart from all this hoopla, the new symbol shall also be serving the purpose of differentiating Indian rupee from its troublesome neighboring countries — Pakistan, Nepal, Sri Lanka and Indonesia — similarly known rupee or rupiah. But all this symbolism shall not hold any importance unless it‟s backed by bold and efficient government policies.

The currency has got an international face but is still to become international in its character. With the introduction of this symbol, the debate surrounding complete capital account convertibility is again expected to shoot up. We are yet to deal with our problems of rampant corruption, astounding poverty and in recent years of income inequality.

Long term implications of the new symbol shall be visible in days to come. But it sure is a time to acknowledge and celebrate our achievements of the past 20 years of economic reforms and gear ourselves for the arduous task of realizing the Indian dream that lies ahead.

– Shreyank Jamar.

Money has always been an important part of life. Ever since man was introduced to occupation, there was a need to buy and sell. In the very early days there was obviously no common medium of transaction and valuation was essentially through exchange or barter. Soon man realized the need of a common instrument in transactions and introduced Commodity Money. Commodity money is basically money whose value is derived from what it is made up of. Gold, Silver and Copper coins issued by the Mughals are one example of this. In today’s day and age, owing to the large fluctuations in the value of commodities such currency is extremely difficult to maintain, produce and circulate and creates an overdependence on the availability of the commodity to meet short and long term needs. The next step in the evolution was issuing notes and coins that were guaranteed by a certain amount of gold or other precious metal. Such a practice was extremely useful and efficiently for atleast a few hundred years. As long as the government could procure enough gold to meet the short and long-term money supply in the economy a gold backed currency was ideal. Unfortunately this concept collapsed and brought with it one of the most severe depressions the world has ever seen.

The Great Depression was caused due to extreme disparity and concentration of wealth but this is generally the hallmark of small recessions too. Arguably, the Depression was created due to mismanagement rather than by the situation. The depression kicked in due to the failure of the entire banking system. This was lead by the collapse of one of the largest public banks – The Bank of the United States. The failure of any public bank creates great panic in depositors and creates a sudden rush for withdrawal. Unfortunately, at the time the gold backed currency system created a lending limit of the Federal Reserve. The failure to bail out The Bank of the United States created a domino effect and the eventual collapse of a massive proportion of deposits and investments. The failure of the financial system, the backbone of any economy would inevitably lead to an overall collapse of an already languishing economy.

The great depression taught us a lot and one big change it brought was the introduction of Fiat Currencies. Fiat Currencies are not backed by any physical commodity but basically valued by its usefulness. The government basically accepts taxes in the currency and therefore the health of the economy and the corresponding taxation create the demand for the currency. The valuation of such a currency is hence determined by the efficacy of tax collection and the demand for the currency. A relatively high economic growth and a minimal or nil deficit would always cause the appreciation of a currency. Hence the concept is sound and helps in flexible valuation of currency so the Central Bank can control the money supply in the economy.

There is however a slight downside to it. Considering the inverse relationship between the price of globally traded commodities and the currency in which it is traded, we must understand that if there is a standard currency used for trading, the fiscal and monetary policy controlling currency has a profound impact on global prices. In the present case, the American dollar is the globally accepted currency with most of the commodity trade being Dollar denominated.

Now the question is when the monetary and fiscal policy of a country determines to a great extent the valuation of the currency, we probably need to relook the priorities of the American Federal Reserve. The Federal Reserve is clearly aimed at overlooking inflation for the sake of growth. The recent spike in commodity prices can be greatly attributed to the rather steep devaluation of the US currency due to their fiscal and monetary policies. A record deficit and rather cheap availability of credit has seen the USD taking a dive and commodity prices sky rocketing. Although the United States is the biggest economy in the world, the overdependence on the USD for trading in the international market leads to prices becoming highly sensitive to the American environment. The selfishness seen in the American policies pushes us to look at other currencies that would be more suitable and sensitive to the international needs such that a right balance is struck between inflation and growth. Alternatives include the Euro or the Japanese Yen. The overall health of the American economy also seems to be a big question mark with the American economy seeing a severe financial crisis every now and then. Consumption paced by credit seems to cause issues and bubbles in the American economy and the selfishly prioritized policies seem to be good enough reasons to move away from the dollar. A change from a dollar backed currency would in effect shield us partly from American policies and should be an intelligent move as long as the new currency adopted is governed in a more responsible manner. This wouldn’t be the first time such a change has happened. With the devaluation of the dollar hitting exports hard in India, some of the big names are shifting to Euro billing. This sets a precedent although in a very small way and in a way urges us to move away from the dollar to a better regulated currency. In the future such a step would probably have to be taken at some point of time. It is extremely unlikely that the entire world would ever agree to be united under a single currency however it isn’t hard to imagine a day when the dollar wouldn’t remain the favorite currency of the world.

– The Akhil Sharma