Rupee Continually Slide down and down against US Dollar | What is RBI doing? | All you need to know about - Akhbaar Express

Do you all know what the current value of one dollar is, it's 79.95 rupee while I am writing and do you also know that this huge gap between dollar and rupee is not from starting. Around 1947, 1 dollar was equal to 3.30 rupee and with time this gap is increasing and increasing. This gap increased at a slow rate till 1990, at that time 1 dollar = 17.01 rupee. But after that in 1995, 1 one dollar became equal to 32.427, around double within 5 years. After this, the gap increased so much that now 1 dollar equals 79.81.

So, in this blog we will discuss what is the reason behind this huge gap in Dollar and Rupee

Who decides the value?

No-one, yes no-one decides the value. A single human or an organization does not decide the value but the value of currency is decided by the daily market factors i.e., demand and supply, with zero or little intervention from the countries involved, mean high demand, high value and low demand, low value. 

Let me explain in simple term

Nowadays you all are very well introduced to the share market or crypto market. Demand and supply also work there. Whatever share and token is in demand, it’s price increases, because people are buying it. Similarly, If people sell then price began sliding down.

Similarly, the currency price is decided. 

• When foreign company set up in India, company have to do its all-local transactions in rupee. For this, company buy rupee from bank by giving their country currency. Rupees value increase in this process as company buying it 

• On the other hand, when we import goods from foreign country then we have to pay in their currency so we buy their currency using rupee. For example, if we import goods from America, we have to pay in dollars. For this, we buy dollars from the bank. Rupee value decreases in this process as we buying other's currency.

Rising Gap

As we know there is no one who can decide value except demand and supply. Similarly, there not a single reason for this,

Some reason for this gap

• In recent years, the import in the country is getting more than exporting due to which lots of Indian going out of country

• Global recession is coming which is making the market sliding down. Most of the investor who invest in IPO last year are withdrawing their money in this bear market

• Due to Covid - 19, the country is facing lots of economic problems like inflation, low GDP till now.

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Can RBI bring 1 Dollar = 1 Rupee

RBI is the parent of all the banks in India. All the banks have to take a license from the RBI to buy foreign currency. RBI holds around 593-billion-dollar foreign reserve which give India stability and if required India can pay all their loan by foreign reserve and prevent us from economic breakdown like Pakistan and Sri Lanka are suffering from. 

RBI make strict monetary policy so that India will not suffer from economic breakdown

If RBI want, it can lower the value of dollar by,

• RBI release some dollar from foreign reserve
• Change policy in such a way that it restricts import which make foreign good expensive and people will not buy it

But RBI cannot do this as it affects the relation with other countries.

Some people also though what if 1 dollar become equal to 1 rupee overnight, then for your kind information it will ruin our country because due to this,

• All the companies will withdraw money from India and set up their plant somewhere else. 
• Company will fire all there employ because now why would company pay someone 50000 rupee (50000 dollar = 50000 rupee) if someone do same work for 20000 dollars in other country
• Poverty will increase due to unemployment

So just forget the dream of becoming 1 rupee = 1 dollar overnight.

RBI working on a new strategy 

RBI figure out a new way of transaction of money between country. Till now, we do all our transaction of export and import in dollars. Before understanding the strategy of RBI, you have to understand how we do transactions of money in the international market. 

Let me explain you all the process with example

For example, Indian trader have to pay 1 crore to Russian trader,

• Only U.S. bank can hold dollar, no other country is allowed to hold dollar. All the foreign reserve of the countries is in the their account of U.S. bank.
• First Indian trader transfers that 1 crore in an Indian bank and asks them to transfer the same amount in dollars to the account of a Russian trader in an American bank. 
• Indian bank then mail to its dollar account in American bank to transfer 1 crore worth of dollar in Russian bank's dollar account in US bank. 
• (1 crore rupee =125086 Dollar while 1 Dollar = 79.95 Rupee)
• Now the Russian bank account in the US bank has 125086 dollars’ worth of 1 crore so the bank in Russia pays 6933182.25 rubles to Russian traders.
• Similarly, all traders and countries do their transactions internationally.

This is a very long process and it requires lots of communication among each other plus there is all the bank taking their commission in the form of exchange rate and this process increases the value of dollar. American and European countries can freeze accounts by putting sanctions on them.

Below is the diagram of whole the process,

Now RBI has come with a new strategy which removes the American bank from the process or we can say a strategy to bypass this system.

RBI comes with the idea of vostro account. Now the question in your mind, what is a vostro account and how will it benefit us? right.

I will explain you in the process, lets take an example again,

This time let say Russians trader have to pay 1 crore (6933182.25 ruble) to Indiana trader

• Russian trader transfers 6933182.25 ruble to Russians bank
• This Russian bank has a bank account in Indian bank where it holds rupee and this account is called Vostro account (In easy way we can say, it's an account of a foreign bank in the country bank). 
• So, the Russian bank sent a message to its vostro account to transfer 1 crore rupee worth of 6933182.25 rubles to the Indian trader account.

This is the whole process; this process is simple and trader have to pay low commission has there is only two banks involved in transaction. It’s also help to rise the value to rupee and reduce the dominance of dollar. But with this process US and European country will surely going to upset  and will support this idea.

 

What can we do?

The Government of India and RBI is doing their work to make India a developed country. As the people of India, it's also our responsibility to help our country to develop. 

In just a simple way I can say let's make Bharat atma nirbhar (Self Reliant India). The Indian Government can't redistribute imports but we can. If we can stop using foreign goods or use imported goods as little as possible and start using Indian goods then the rupee will not go out of the country. Stopping the use of foreign goods will lead to reduced import and if export is done in more ratio, then the import. The value of the rupee will automatically rise.

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