Dollar is American currency which has become universally accepted currency. Even though there are competitors, there is no proper alternative to beat its supremacy. Everyone is after dollar to earn it as the earner is technically sixty times more than Indian earner. In detail, dollar earner gets more rupees than his counterpart who is working in India. Hence, most of the guys are after the dollar. The reason is evident. But why should Indian rupee be lesser than the dollar, why dollar and rupee cannot be of same value. These are the questions you might have encountered in your life. They might have gone to sub conscious area to find answers. This article is a solution to find the reasons behind dollar and rupee relation.
Reasons behind lesser rupee value
Balance of payments crisis
India has experienced the Balance of payments crisis in 1991. India has to reach to the World Bank and resort to lending. The conditions are imposed on India. Among these conditions, India has to lose the value of rupee. Actually rupee has not lost its value against dollar, but also against other currencies. Thus BoP crisis has its role in depreciation of rupee. The lesser rupee has its fall in 1990s. Why should India lessen its currency value? Our 80% of trade happens in dollars. We need dollars to buy anything from outside. If a country lessens its currency value, importers get encouraged. They get good profits. Dollars will flow to the country where exporters are greatly engaged in exporting. Thus a nation can have balance of payments. This is the reason India is to fall its currencies. The more detailed explanation is given for deliberate falling of rupee in next paragraph.Throwing down the value purposefully (weak rupee policies)
Every country wants to export goods and services to be away from Balance of payment crisis. As well as one wants to be ahead of other country. This leads to promotion of exports and governments will make policies to encourage exporters. Few countries try backdoor promotions to gain a bit than other countries by letting their currency rates fall. For example, if an exporter by selling a good to United States, you assume that he gets $1. If currency is fifty rupees, exporter may not export the good to USA. But if it is sixty rupees or more, he can benefit by ten rupees. He supplies same good with same value. But currency changes bring him ten rupees profit even the good value is not changed. Even there are chances for appreciation of rupee, India may step behind to do so as it may lessen the profit margins and lead to dampen the spirit of exporters. So there is easy fall but very tough task to get appreciated. Here we can say everything has its good and bad. Even fall in rupee is beneficial for a section i.e. exporters. There are several examples for this type of deliberate falling in currencies. Few countries denounced China for inadvertently letting its currency fall down to benefit exporters.Demand and supply
We all know the demand and supply behavior. The more the goods of certain type the lesser the demand and it leads to lesser value. If goods are few, demand is more and automatically increases the value of the goods. Just like this, there are currency markets. The currency markets play key role in deciding money value. If Indian currency is more available i.e. supply is more and those demands get it without any constraints as it is more. But if it is less and is asked by many i.e. demand is more. This makes currency get value. To understand this, we can take example of graduates in India. Let us assume, there are more Mathematics’ graduates and less English graduates. Who will get more salary? The Maths graduates or English graduates. If we can understand this, we can understand the nuances hidden in currency value. The English graduates are paid more when compared to Maths graduates as they are more than necessary. Then why the Indian currency is available to currency markets more than needed. The answer is simple. We import much than export.Conclusion
It is clear from above that rupee has its fall deliberately as well as fatefully. We cannot affirm a currency rules forever. Rupee will raise its face depending on the performance of its individual citizens.Are you hardcore Group-1 aspirant, then navigate to Success tips for APPSC Group-1 Mains
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