In May of 2012 the Indian rupee reached its lowest point against the dollar in history. The Reserve Bank of India, the printers and guarantors of the rupee, has even discontinued many smaller denomination coins because of their economic ineffectiveness. This has sent ripples through the foreign exchange world.
The currency market determines the value of the rupee against the dollar. The Reserve Bank of India has traditionally speculated heavily in favor of the rupee. However, successive administrations have refused to peg the rupee’s value to stronger currencies.
Their intervention has been designed to minimize volatility in the currency market. This means that they only try to make the rupee change value slowly, and they do not try to influence its general increase or decline. Unfortunately, this tactic has been ineffectual in protecting the overall value of rupee.
Though the rupee is backed by the full faith of the Indian government and their economy has been booming for decades, the rupee has consistently declined in value against other currencies and will likely remain exceptionally weak against the dollar for the foreseeable future.
How does this affect you?
It, naturally, will depend on your relationship to India.
If you work in India for a foreign company, it is very much to your advantage to get paid in dollars, and convert them to rupees at the moment of purchase.
If you want to hire someone in India, your dollar will go a long way in paying local wages. You will be able to hire more people and pay them better. If it is possible and practicable to pay them directly in dollars you will find them receptive. If you are a tourist or traveler and you wish to visit India, or anywhere that the Indian rupee is currency, you will find goods and services easy to obtain.
From Indonesia to Pakistan and all the way over to Afghanistan the rupee is legal tender. Because it has declined against the dollar all these places are de facto offering great deals for any foreigner with an interest to purchase their products, whether they are tourist goods for individuals or shipping containers full of manufactured exports for industrial conglomerates.
Speculation in the natural resources of this area, or in Indian real estate, is also exceptionally easy for the overseas investor. The American dollar buys a lot more real estate under these circumstances.
However, in some ways this can make an international company’s task more difficult.
The foreign exchange reserves of India have slumped remarkably, so if you are part of an international company that has contracts with the Indian government you will probably find work harder to get.
Though it does not affect the overall trend, the stabilizing influence of the Reserve Bank of India has positive effects. Even if the rupee continues to decline, it is certain that it will decline slowly.
India’s industrial and technological might continues to grow every day, and there is every possibility that this will halt the fall and reverse it. In the long run, India is a good bet, and the rupee is a dependable currency.
[About the Author:Dan is a financial blogger who likes to write about recent economic trends. He also gets a lot of his business sense from his background as a mortgage broker. ]