When India got independence that time 1 INR is equal to 1 USD but in 2022 it was 1 USD is equal to 79 INR. What is the reason behind the fall of INR against the US dollar? Every day by day, we can see rupee values are going down.
Here we are discussing how the currency values are increasing and how currency values are decreasing. What are the major reasons behind the changes?
Determination of currency values
To understand how the currency values are determined we need to understand international trade and business. In the era of globalization, all countries participate in trade and business. It’s not necessary that we will get all the goods and services from one country.
In detail, India is a large consumer of electronics most of the products are not manufactured in India. Most of them come from china, japan Korea, etc. at the same time India is exporting many food products to other countries also India exports steel to other countries.
How global trade depends on the US Dollar
Suppose you need to purchase one product from the US and you need to pay that in US dollars but you have INR in your hands How does the trade happen? So the person needs to go to a bank or any money exchange to convert the Indian rupee into the US dollar.
There is the logic behind this called supply and demand. In money exchange, the same thing happens. If people need more US dollars they will reach to money exchange and convert that money into INR. That means in one country is depending more on import function then there will be a huge demand for the US dollar so which impact the fall of INR against the US dollar. This will be the primary reason behind the fall of INR against the US Dollar.
India’s Import and export
India is importing many products from other countries major products that India imports
- Petroleum crude
- Gold and silver
- Electric goods
- Pearls and precious stones
- Nonelectrical machinery
- Organic and inorganic chemicals
What are the products that India exports
- Cotton, yarn, and fabrics
- Rubber products
- Glass products
- Manufacturers of metals
- Readymade garments
- Machinery and instruments
- Transport equipment
- Pharmacy products
- Gems and Jewelry
- Petroleum products
India’s import value is higher than India’s export value. It means India is still in a trade deficit not in a trade surplus. If the export value is greater than the import value then it is called a trade surplus. If that happens India’s INR value will be high
US Dollar is a global currency?
How us dollar becomes the world currency. Most countries are accepted trade in a single currency and it’s called global currency. After the world war, delegates from 44 countries united in the US and decided that the dollar will be the global currency for all trades
Why do the delegates meet in the US?
After the world war, most countries were affected by the financial crisis. At that time they are using gold as a standard so they need a common currency to trade in all countries.
Why they selected as US dollar as a global currency
After the world war, the US has a strong economy, and they have the major gold shares which mean they have a ¾ gold reserve. They are highly powerful at that time
What is the major decision?
The US dollar was made as the global currency. And they have created the International monetary fund (IMF) and world bank to monitor the global economic
Why India imports more products
India is the second largest populated country in the world. India needs many desirable objects which are not available in India and another one some products which are not available or not produced in India. This leads to importing products from other countries.
People can reduce their needs and desires and start manufacturing products in India itself both cases will help to reduce the price fall against the US dollar. These are the ways relatively Indian rupee falls. Another way to reduce the price value is to fall in the absolute value of money
Reason for the fall in the absolute value of money
The purchasing power of Indian rupees is falling year by year. Suppose a few years ago u just need to pay 10 INR for 1 kg of rice but right now it will be 30 or 40 INR. This means the absolute value of money is reducing Inflation is the major reason for this. The major reason for inflation is a limited supply of products that have more demand which leads to inflation and it will reduce the value of money
What are the factors influencing the inflation
- Financial deficit of the country
- Economic situation and economic growth of the country
- Average wages in the country
- Share percentage in world trade
- Interest rate
- Employment rate
Likewise there many factors determine the inflation rate. These are the ways Indian rupees are falling down