New Delhi 12 hours ago
The rupee had lost 60 paise to close at 77.50 against the dollar in yesterday’s trade. The rupee opened 27 paise lower at 77.17 and touched a low of 77.52 during the day. It had earlier closed at 76.90 on Friday. The rupee had lost 115 paise against the dollar in the previous two sessions.
Anuj Gupta, Vice President (Commodity and Currency), IIFL Securities, attributed the rupee’s weakness to strong USD, weaker Asian currencies and lower oil inflation. The rupee may depreciate to 79 against the dollar in the coming days.
How is the value of a currency determined?
There are many reasons for currency fluctuations. When any other currency depreciates against the dollar, it is called a fall, a break, or a weakening. In English – currency depreciation. Each country has foreign exchange reserves from which it handles international transactions.
The decline and increase of foreign exchange reserves determine the movement of that country’s currency. If the dollar is equal to the US rupee against Indian foreign exchange reserves, the rupee will remain stable. In our case, if the dollar depreciates, the rupee will weaken and if it rises, the rupee will strengthen.
Where is the loss or benefit?
Disadvantage: Crude oil imports are expensive, which increases inflation. Vegetables and food items are expensive in the country. But Indians have to pay in dollars. That is, going abroad is expensive, studying abroad is expensive.
Benefit: Exporters benefit because the payment is in dollars and they can earn more by converting them into rupees. This will benefit IT and pharma companies selling goods abroad.
Why does the currency depend on the dollar and since when?
Most currencies in the foreign exchange market are compared to the dollar. Behind this was the ‘Treaty of Bretton Woods’ during World War II. Proposed to create a neutral world currency. However, America is the only country that has grown economically strong. In such a situation, the US dollar is chosen as the reserve currency of the world.
How is the situation handled?
The central bank can play an important role in any country in maintaining a weak currency. In India, this role belongs to the Reserve Bank of India. He tries to meet his demand in the market by buying dollars from his foreign exchange reserves and from abroad. This will help in stabilizing the dollar against the rupee to some extent.