Rupee breaks 64 to dollar | The fallacy of 'dollar = rupee' in 1947 | Dollar To Rupee | USD To INR | Today's Rupee Value | Today's Dollar to Rupee Value
The free
fall in the Indian rupee extended to a third straight session on Tuesday. The
partially convertible rupee breached the 64 against dollar to hit yet another
record low. The rupee fell nearly 1.5 per cent to a low of 64.05 after closing
at 63.13 on Monday. Indian rupee was pegged to the British Pound till 1966 (see
footnote on page 1 of this RBI document) when it was devalued and pegged to the
US Dollar. A good account of the two devaluations of 1966 and 1991 is given in
this paper by Johri and Miller. The peg to the pound was at INR 13.33 to a
Pound which itself waspegged to $4.03. That means officially speaking the USD
to INR rate would be closer to Rs 4. In 1966, India changed the peg to dollar
at INR 7.50. Surely, the exchange rates are not very meaningful when the
currencies are fixed by governments and the unofficial rates would be usually
even worse given the pressure British Pound was under post world war 2.
Dealers
said continued dollar demand from state-run banks for oil, defence and other
interest payments has been pressuring the rupee. The sharp fall in the rupee
hit stock markets with the BSE Sensex falling below the key 18,000 levels for
the first time since September 13, 2012. The 50-share Nifty came close to breaching
the key 5,300 levels, dropping over 100 points. The Reserve Bank of India has
proven unable to stem the rupee's selloff, despite intervention and curbs on
outflows from companies and individuals, which have dented India's stock and
bond markets.
When I
encountered this message, my main objection was that the exchange rate of a
currency is not really an indication of its strength. I am sure it is nobody's
contention that India of 2013 is worse off than India of 1947. What was funny
about the 1 USD = 1 INR posts was that it was justified with an argument that
since India had no external borrowings, its currency was at par with the
dollar. If low borrowings made up for strong currencies then North Korea might
have been a front runner. As
Ambedkar had mentioned, a stable currency is what matters rather than the
absolute exchange rate.
The
currency continued to bear the brunt of a large current account deficit and
fears of tapering of the monetary stimulus by the U.S. Federal Reserve on the
rise. Bond yields surged with the 10-year yield surging 15 basis points to 9.38
per cent. The rupee has fallen more than 13 per cent in spot trading against
the U.S. dollar so far this year. Majority of the decline in the rupee has come
after the U.S. Federal Reserve hinted in May that it would begin slowing its
pace of quantitative easing.
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