Falling Rupee
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Falling Rupee

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Falling Rupee Falling Rupee Presentation Transcript

  • History of the Rupee  India was one of the first issuers of coins (6th Century BC)  The word rūpya which means "a coin of silver“  The silver coin remained in use during the Mayura,Mughal Era, Maratha Era as well as in British India.
  • Silver coins of mayura empire(3rd century) Rupee coins of Moghals (15th century) British coins (18th century)
  •  Acute shortage of silver during the First Word war, led to the introduction of paper currency  Among the earliest issues of paper rupees include; the Bank of Hindustan (1770–1832), the General Bank of Bengal and Bihar (1773–75), and the Bengal Bank (1784–91).
  • Udaya Kumar Dharmalingam, the man who designed the rupee symbol Launched on 8 July 2011
  •  The rupee was subdivided into 16 annas.  Each anna was subdivided into either 4 paisas.  So One rupee was equal to 16 Annas, 64 Paises.  In 1957, decimilasation occurred and the rupee was divided into 100 Naye Paise.  After a few years, the initial "Naye" was dropped.  Stainless steel coinage of 10, 25 and 50 paise, was introduced in 1988 and of one rupee in 1992.
  • The Indian rupee Vs. Other currencies (19th century)  The Indian rupee was a silver based currency  The stronger economies at that time were on the gold Standard.  which had severe consequences on the standard value of the currency.  The Indian Rupee was trading at around 24 British pence.
  • •Continued trade deficits •Could not borrow money from abroad •The government issued bonds to the RBI •Increased the money supply •The Indo-Pakistani War of 1965 •US and other countries friendly towards Pakistan to withdraw foreign aid to India •The drought of 1965/1966 which resulted in a sharp rise in prices. •As a result of above The Indian Rupee was trading at around 6 British pence.
  • 1991 Economic crisis •Started having balance of payments problems since 1985 •By the end of 1990 serious economic trouble. •Foreign exchange reserves could barely finance three weeks’ worth of imports •Economic liberalizations, Globalizations and Privatizations. •At the end of 1999, the Indian Rupee was devalued considerably.
  •  In the period 2000–2007, the Rupee stopped declining and stabilized ranging between 1 USD = INR 44–48  In 2007, the Indian Rupee reached a record high of Rs.39 per USD, on account of sustained foreign investment flows into the country.  The trend has reversed lately with the 2008 world financial crisis as Foreign investors transferred huge sums out to their own countries.
  • 2013 Depreciation India's Currency, The Rupee, Has Plummeted To A Record Low Against The Dollar. (Indian Rupee = American Dollar) * 2013 (Aug 28)
  • Exchange rate Year (INR per USD) 1947 4.79 1966 7.5 1975 8.39 1980 7.86 1985 12.38 1990 17.01 1995 32.42 2000 43.5
  • 2005 (Jan) 43.47 2006 (Jan) 45.19 2007 (Jan) 39.42 2008 (October) 48.88 2009 (October) 46.37 2010 (January 22) 46.21 2011 (April) 44.17 2011 (September 21) 48.24 2011 (November 17) 55.39
  • 2012 (June 22) 57.15 2013 (May 15) 54.73 2013 (Aug 28) 68.83
  •  Since January the rupee has plunged 20 percent  In the last three months it’s dropped 13.1 percent  The biggest such decline in nearly 18 years  On Wednesday India’s currency posted its biggest one-day drop ever  Now sits at a record low against the dollar.
  • Deprecation Of Rupee  More and more rupees are brought in our country and dollars are sold  More and more rupees are sold and dollars are brought
  • This is resulting in creating more actual as well as speculative demand for the dollar and other convertible currencies.
  • Balance of Payment Current Account Capital Account
  •  The balance of payments (BOP) is the place where countries record their monetary transactions with the rest of the world.  In the current account, goods, services, income and current transfers are recorded.  In the capital account, physical assets such as a building or a factory are recorded.
  •  Goods (general merchandise, goods used for processing other goods)  Services (transportation, business services, tourism, royalties or licensing)  Income (money going in or out of a country from salaries, portfolio investments, direct investments or any other type of investment.)  Current Transfers (workers' remittances, donations, aids and grants, official assistance and pensions.)
  •  The balance of the current account tells us if a country has a deficit or a surplus.  A surplus is indicative of an economy that is a net creditor to the rest of the world.  A deficit reflects government and an economy that is a net debtor to the rest of the world.  Theoretically, the balance should be zero, but in the real world this is improbable.
  • Recession in developed economies like US made big institutions to pull out their money from India
  • The fear of bubble bursting in gold has resulted in investors viewing dollar as a safe currency
  • • Trade deficit has widened by 40,000 crores in the last quarter. This has resulted in increased imports and spike in dollar demand
  • Perception of lack of clarity on policy front is also fanning speculative demand wherein the Reserve Bank of India (RBI) on one day said it will tighten liquidity and on yet another said it will inject $1 billion in the market.
  • India's foreign exchange (Forex) reserves are enough to cover imports of seven month only. The forex reserves have declined in the recent months. Due to low reserves, the RBI can't intervene aggressively in the currency markets.
  • India's gross domestic product (GDP) growth fell to a decade low of 5 percent in 2012-13. The situation is unlikely to improve much this year. Foreign investors are pulling money out of the Indian markets due to slow growth.
  • Dependence on Foreign money India's current account deficit was financed by foreign money for the last many years. Withdrawal of money by overseas investors is leading to the weakness in the rupee.
  • Recovery in the US The slow but steady recovery in the US is making the greenback stronger against other currencies.
  • Stimulus Withdrawal Indications that the US may withdraw or ease the fiscal stimulus package that has been on since a few years ago to tide over the economic crisis there, could potentially put the brakes on funds for developing economies.
  • Capital Controls The decision by the Reserve Bank and the government to impose temporary restrictions on capital flows has not gone down well with the markets, as it will not only discourage Indian companies from investing abroad, but also foreign firms from pumping money into India.
  • The rupee is also following the trend seen in the currencies of other emerging economies such as Brazil, Indonesia, Russia and South Africa.
  • Speculative trading in the currency markets is putting further pressure on the Indian rupee
  • Solution?  To balance demand & supply  Proper implementation of monetary policy and fiscal policy in our country  Stability in imports & exports etc.
  • CONCLUSION The value of the rupee in terms of dollars will depend over time on the erosion of its value in terms of purchasing power internally. If inflation has been at say, 7 percent, the rupee will have to fall to that extent unless the importing countries are themselves victims of inflation. That is not the case. Hence, the rupee has fallen the most compared to other currencies because we had nearly the highest inflation. Eventually, the rupee will stabilize, barring short-term disturbances, after correcting the loss in its domestic purchasing power. The rupee will not go back to 45 to the dollar; at best it will stabilize at 51-52.
  • ANY QUESTIONS?
  • UmMaR FaRoOq