August 31, 2018

Why is ruppee falling against US Dollar?

Why is Indian Rupee falling against US Dollar?

US Dollar – as most of us know is the most liquid currency in the world & its a global currency that is accepted for trade throughout the world. If my memory serves me right – as per the latest world bank report which i read – US dollar constitutes around 65% of all Central bank – foreign exchange reserves. This equation alone says – why every country wants to buy Dollars, as most of their trade settlements are done in US dollar terms. This was a context to start with.

You may Say – US is sitting on pile of net debt around 20+ trillion, why is emerging market currencies are weakening..

You must realise one fact about money – M0ney is the most lucrative thing that our world loves the most & hence it changes hands quicker & swiftly – as it moves around 24/7. Now keeping your eyes on this M0ney & mind you – now the colour of M0ney is US Dollar – look at Economic equation of the current world – as you highlight US is sitting on 20+ trillion debt, most businesses are thriving for better prospects & naturally US has most of the dollars as its their currency and its rest of the world who is after it.

As a US businessman if i were to invest – i will first look, who is valuing my US currency in better terms, while i want to invest. Now just pull up a 6 month chart of US currency against all currencies in the world. You will notice US dollar has gained 27% against Brazilian Real, followed by South African Rand, Russian Ruble & then comes our own Indian Rupee at around 8.5%. Now Remember the rule of Currency Dynamics – just because you see US dollar rising, that doesn’t mean US economy is rising – but it also mean US economy is still – while Indian Rupee is being let to depreciate to attract better share of the US dollar. So as a US business man i have been able to buy all Indian businesses @ 8% flat discount, owing to power of US currency against India.

This is exactly the case with all emerging economies – Brazil, Russia & all emerging economies just like us – India as well. Well, China has been rigging currency like this against Dollar for decades as it’s the world’s manufacturing hub, so that US can buy more of China products. Now which countries currency depreciates more is something subjective – owing to what kind of investments & privileges exist that you may look attractive for US businesses to buy. Emerging trade war, only adds to the icing on the cake – for each country to bite it, for what they long for 🙂 

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