decling a value of indian rupee
A declining rupee: What does it mean?
Photos
The Indian Economy is suddenly faced with numerous issues, among them a sharp devaluation of the national currency, the rupee. And the rupee’s performance has been much in the news in recent weeks.
Reference currency
The value of a currency is its purchasing power – that is, what you can get for a unit of the currency in terms of goods and services. In today’s context when it is said that a currency is declining or being devalued, it is with respect to other currencies. Therefore, when speaking of the prevailing value of a currency, we use a reference currency and state whether the host currency – eg India’s rupee – is increasing or decreasing in value against the reference currency.
The Indian rupee’s value is closely monitored by the Reserve Bank of India and maintained within a range based on the market forces and the relative value of a basket of currencies. For the sake of simplicity, we can look at how the rupee has moved against the US dollar (USD).
The rupee’s report card
The Indian rupee has been steadily declining in value over the last half a century. From `7.5 to the USD during the 1960s, it reached a level of about `17.50 in the late seventies and early eighties. There was a sharp decline in the value thereafter and the rupee entered the nervous nineties at 32 to the USD. The early nineties saw further decline and the rupee entered the 40s while weathering the foreign exchange crisis of 1991.
Post ‘liberalisation’ the rupee was relatively stable for nearly a decade and, for possibly the first time in its history, was moving both ways (strengthening and weakening) against the USD. This was the time when the euro came into existence and the value of the rupee also responded to the Euro-USD cross rates. From a level of around `45 per dollar about two years ago, the rupee weakened to over 60 to a dollar, a devaluation of 33 per cent.
Why is foreign currency a player?
The value of a currency
Photos
The Indian Economy is suddenly faced with numerous issues, among them a sharp devaluation of the national currency, the rupee. And the rupee’s performance has been much in the news in recent weeks.
Reference currency
The value of a currency is its purchasing power – that is, what you can get for a unit of the currency in terms of goods and services. In today’s context when it is said that a currency is declining or being devalued, it is with respect to other currencies. Therefore, when speaking of the prevailing value of a currency, we use a reference currency and state whether the host currency – eg India’s rupee – is increasing or decreasing in value against the reference currency.
The Indian rupee’s value is closely monitored by the Reserve Bank of India and maintained within a range based on the market forces and the relative value of a basket of currencies. For the sake of simplicity, we can look at how the rupee has moved against the US dollar (USD).
The rupee’s report card
The Indian rupee has been steadily declining in value over the last half a century. From `7.5 to the USD during the 1960s, it reached a level of about `17.50 in the late seventies and early eighties. There was a sharp decline in the value thereafter and the rupee entered the nervous nineties at 32 to the USD. The early nineties saw further decline and the rupee entered the 40s while weathering the foreign exchange crisis of 1991.
Post ‘liberalisation’ the rupee was relatively stable for nearly a decade and, for possibly the first time in its history, was moving both ways (strengthening and weakening) against the USD. This was the time when the euro came into existence and the value of the rupee also responded to the Euro-USD cross rates. From a level of around `45 per dollar about two years ago, the rupee weakened to over 60 to a dollar, a devaluation of 33 per cent.
Why is foreign currency a player?
The value of a currency