Why Rupee is Falling Against Dollar?. The fall of the value of Indian rupee will disturb each and every citizen of India. Even though we are reading news about the fluctuation in the value of the currency and the impacts it will have on each of us, most of us are unaware of the facts behind the process of determining the value of the currency and the factors that play behind it. This article is going to explain how the value of a currency determined and why the value of Indian rupee is falling against Dollar. And also about the demand-supply concept, purchasing power, and the meaning of “value of money“.
How the currency value of each country determined?
What are the reasons behind the fall of the Indian rupee?
when will Indian rupee increase against the dollar ?
The value of Indian rupee is fluctuating and it has severe consequences on the economic development of the country. The major surprising fact is that in 1917, 1 Indian rupee was equal to 13 dollars. But now in 2019, we have to give 70.67 Indian rupees in order to get 1 US Dollar. The value of Indian rupee is falling against Dollar at a higher rate. A clearer understanding of the reason behind this problem is necessary in order to be alert and to take action against this problem.
RELATIVE VALUE AND ABSOLUTE VALUE
Both the relative value and absolute value of Indian rupee falls at a rapid rate. Let us examine it with simple examples: The relative value of a currency is the value it has when compared with the currency of another country. Here we compare the fall of Indian rupee when compared with US Dollar. As I explained earlier the value of Indian rupee has great fluctuation during years. In 2014, 1 US Dollar was equal to 63 Indian rupees. But in 2019 it has become 70.67.
There is a change of 7.67 rupees within 5 years. It is a small change when speak about 1 rupee. Just think the value of rupee when we have to do dealings with thousands or lacks!
The absolute value of money is the actual value of money within the country itself. Earlier days we had got 1 gram gold for tens and hundreds where now we have to pay thousands of rupees. This is the case in all the commodities we buy from the market and this is not a silly fact.
FACTORS DETERMINE VALUE OF MONEY
To understand the factors that fix the value of a currency, we have to learn about international trade and business. There are several factors that determine the value of money including the factors related to the country and also related to the money exchange system . Why Rupee is Falling Against Dollar
In the case of the Indian rupee, the major factors that we need to discuss are
- Effect of Globalization
- Import and export system
- Supply- Demand
- Increase in population
- Interest rate
- Government debt
- Global nature of Dollar
- The current account of the country
- Political stability and performance
Globalization is very strong in the present scenario. Almost every country do business globally around the world. There are several positives and negatives are associated with the concept of globalization. One country itself cant produce every product that is needed by its citizens. So, the used to buy it from other countries and in turn, it will lead to the development of trade relations between these countries. India is also a part of globalization and we buy more things from foreign countries. The increase in such import is one of the crucial factors that cause the fall in the value of rupees.
2.Import and Export system
Importing things means buying things that are in need of the country from outside countries and exporting is the process of selling the products of one country to foreign countries. The import-export activities between countries influence and affect the value of the currency. India is a country that used to import more things rather than exporting. while analyzing the international trade data of last year the imported commodity value of India is 65% greater than export. This explains that our country exists in a trade deficit. That is the value of the things we buy from their countries is several times more than the value of things we sell. This will lead to a decrease in the value of the currency.
If we need to buy a product from the US (US branded products) we need to pay money in Dollar. So we need to exchange the Indian money we have to Dollar from the bank. Banks exchange the money from Foreign Currency Exchange. When we buy more products from foreign nations there will be an increased demand for the US dollar and its value will also increase. A process called ‘supply-demand’ occurs there. When we import more things from other countries the supply of the US dollar will increase and the demand will also need to increase. It will, in turn, increase the value of the dollar against the Indian rupee.
The decrease in demand for a currency is called the Depreciation of currency.
The increase in demand for a currency is called Appreciation.
This is an automatic process because the demand and supply of the products in the market determine the value of the currency. Hence there will be great fluctuations in the value of the currency and it will cause dangerous problems to the financial stability of our country.
The change in the market inflation rate will cause changes in the currency value. It is because of the change in currency exchange rates. When there are more and more demand and less and less supply of a product there will be an increase in the importation of things from where it produces. This will lead to inflation and a decrease in purchasing power. Higher inflation in the country will cause depreciation of the currency.
5.Increase in population
This is another important factor that we have to discuss about. The primary reason for all the issues presented above is the increase in the number of population in our country. When the population of a country increases it will lead to scarcity of natural and manufactured products and resources. The increased demand will lead to an increase in porting items from foreign countries. This will also contribute to the fall in the value of rupees.
The change in interest rate will affect the currency value and dollar exchange rate. If the interest rate increase it will attract more foreign capital by providing high rates to renders. It will lead to an appreciation of the currency and the value of rupees will increase. But the present condition of India is just opposite to this. The interest rate of our country is not high and so the ratio of investment of foreign capital is less.
Government debt is the national debt owed by the central government. Our country has a huge amount of debt every year and it will directly or indirectly lead to inflation. The main reason is that a country with government debt is less likely to acquire foreign capital, leading to inflation.
8.Global Nature of the dollar
Another reason why the value of Indian rupee against the US Dollar is that the US Dollar is a global currency. The dollar is not only used in the United States only. It is used globally in many foreign countries. For example, almost 80% of oil reserves are in the United States and it is the same in the case of gold also. So, it increases the demand for the US dollar.
9.The current account of the country
The current account of a country is the total number of transactions of that country. It means the total import and export of the country. If the country spends more money on importing this will lead to depreciation of the currency. India is facing this as a crucial problem.
10.Political stability and performance
The economic strength of the country is mostly dependent on the political state and functioning of the country. The economic and political stability of a country will attract foreign investors and it will make an increase in investment in a country. Political turmoil in our country is badly affecting the fall of the Indian currency. This also affects the international trading system of our country.
Why Rupee is Falling Against Dollar?. when summing up the information, the falling of the value of Indian rupee against Dollar is an important issue that we have to consider as a citizen of the country. The problems arise due to globalization is the main factor. India is a consumer nation. We didn’t produce things that are sufficient for our needs. So, we prefer to consume products from outer nations and in turn, the demand of Indian rupee becomes decreased. The first step that we have to take against this problem of falling in the value of Indian rupee is that we have to support and promote Indian brands and their commodities. Some other important steps that we have to take are;
- Stop imitating the living style of European countries
- Keep control of the increase of our demands and needs.
- Try to produce the things that we need in our country.
- Try to use Indian products and promote Indian brands.
- Respect Indian products and try to improve their quality and its reach in the international level.
Don’t simply ignore the problem of becoming valueless. It is the problem of our country. The problem that directly and indirectly affects each one of us. So, become aware of the present condition of our country and take action at least on an individual level.