Rupee is going down continuously. On Tuesday, for the first time, the value of the rupee has crossed 80 rupees against a dollar. The opposition has been attacking the government for some time over the falling value of the rupee against the dollar. Congress and other opposition parties are continuously attacking the government.
Former Congress President Rahul Gandhi has asked questions to Prime Minister Narendra Modi regarding this issue on Friday.
Recently, by sharing a graph on Twitter, Rahul Gandhi reminded the Prime Minister of his old statement. This statement is from the era when Modi was the Chief Minister of Gujarat.
Rahul Gandhi wrote, “The country is in the throes of despair.” These are your own words, aren’t you, Prime Minister? The more noise you used to make at that time, the more ‘silent’ you are today seeing the depreciation of the rupee.
Videos of Prime Minister Narendra Modi’s statement of that era are also viral on social media.
Congress spokesperson Supriya Shrinet also attacked the government and said, “It has to be accepted that the biggest reason for a weak rupee is a collapsed economy – unbridled inflation.”
The government is also probably aware of the situation. Two weeks ago, Finance Minister Nirmala Sitharaman said, ” The Reserve Bank is keeping an eye on the rupee. The government is in constant touch with the Reserve Bank of India regarding the exchange rate.”
But why is this happening? Why is the rupee falling against the dollar and what factors determine the rate of rupee?
Now if you want to buy one dollar, then you will have to pay 79 rupees instead. This is called the exchange rate in technical language.
Apart from rupee-dollar, such buying and selling takes place between other currencies as well.
Different countries of the world have their own currency. Like Britain’s currency is Pound, Malaysia’s Ringgit. So suppose someone wants to buy something from Britain or do business or travel there, then for that they will need British currency i.e. Pound. They have to buy pounds.
The exchange rate will be the exchange rate that the person will get by paying the price for the rupee or the currency of any other country.
How is the value of currency determined?
Where currency or currency is traded, it is called foreign exchange market, or money market.
The exchange rate is not always the same, it keeps on changing. It is not necessary that the amount of rupees that have to be paid in July 2022 for the pound, in December also the value of the pound will remain the same against the rupee or any other currency.
It can be less or more. It depends on the demand and supply of any currency.
The higher the demand for currency, the higher its value will be. Now since a large part of the world does its business in the American currency ‘dollar’, there is always a demand for dollars in the money market.
Now when you or any person who needs any currency or has to sell any currency, where will it go? The answer is banks.
Option with Reserve Bank ?
Suppose a person has come to Delhi from New York (USA) and wants to sell dollars to him, then he will go to a bank and get rupees exchanged for dollars.
So bank is a small unit of money market or money market and there are several lakhs of banks around the world. Along with this, the government also gives licenses to traders to buy and sell currency, all of them are part of the money market.
The central banks of countries, such as the Reserve Bank of India in the case of India, also keep a reserve of foreign exchange with them.
However, since 1993, the money market has also been freed from government control like other areas and the value of which currency will depend on the demand-supply in the market. But central banks often intervene in the money market as well.
If the dollar becomes very expensive in the foreign exchange market, then RBI can balance the value of the rupee by selling dollars in the money market and buying rupees if needed.
effect of rising currency
In a country like India, essential goods such as crude oil, gas, etc. are imported from abroad on a large scale. Apart from this, the deal of electronics and military equipment is also mostly in American currency. So India is always in need of dollars.
If the demand for these goods becomes more, then their price increases in the international market and India has to pay more money for their import, due to which the rate of petrol and diesel increases. More expensive oil and gas are used to transport goods, run factories and inflation increases.
Why is the dollar getting expensive?
For some time now, it is being heard again and again that the rupee has weakened more and more against the dollar. There are many reasons for this.
The Russia-Ukraine war started after the slowdown in the economy due to the pandemic. Western countries imposed economic sanctions on Russia and many countries stopped buying crude oil from Russia. The price of oil and gas went up in the international market, which also affected America and Europe.
The supply of food grains, cooking oil, etc. has been interrupted due to rust.
The US and Europe are witnessing the highest inflation in the last several decades.
In order to protect the common people from the impact of inflation and to prevent its adverse effect on the economy, the central bank of America has increased the interest rate. Due to this the interest on government bonds there has become more. But due to the increase in the interest rate, the business and industry will have to pay more interest on the loan taken for the business.
Inflation has also increased in India. So the result has been that foreign investors, especially those foreign companies, individuals who had put money in India, are taking it out of here and taking it to America because they think that their money will be more secure there.
Millions of dollars of investment have been withdrawn from India in the last few months, as a result of which there is a lack of supply of dollars in the money market.
It is being said in the coming days that the US central bank will increase interest rates further. That is, you may have to pay more rupees for one dollar.