Reassessing The Indian Rupee

by

I can only hum a modified version of this well known Indian song, as I assess the recent performance of our Indian Rupee.

na biwi na bachcha na baap bada na maiya
the whole thing is that ke bhaiya 
sabse bada chota rupaiya...

Every person seems to be offering his gyaan on the rupee – be it the aggressive netizen, the market analyst, or the maami across the street. Hence, me offering another cent and a half (or a rupee) should be okay. Yes, our good old currency is literally trading at around र65 to a US Dollar (which is ~ 1.5 cents/र).

I am reminded of a similar event in sports during my college days, when a certain Ukranian pole vaulter (Sergey Bubka) used to consistently break his own previous world record – on a consistent basis. From about 50-55 to a dollar, the rupee has rapidly devalued to levels never seen before. The INR-USD rate has breached the senior citizen age (a term used by many on the social media) to levels of 60, 61, and now almost 65.

The negative impact this has on India’s macro-economics (i.e. current account deficit, inflation, GDP/growth rate etc.) is a topic of larger and separate discussion. We are hearing and reading already about the economic impacts of such a situation on the various newspapers and channels. I thought, what if I take a frivolous and contrarian view of the devaluing rupee’s situation.

What are the not-so-negative impacts with a largely devalued rupee?

  1. Fake Currency Makers Beware: Be it some of the Pakistanis across the border or those silly elements who illegally print these 500 rupee notes. Alas, it is your dooms-day! Your overheads of printing each 500 rupee note is going to out-weigh the silly profit you make with this stupid illegal venture. Stop these acts at least from now and start thinking about earning money the hard and legal way.
  2. Probability of New Currency Denominations:  The current rupee is practically close to retirement age and I feel, RBI/policy makers could think of literally retiring it. Much like the Indonesian government which is re-denominating its currency, as it fights with its own Rupiah devaluation (is there something in the name).  An interesting solution is to have a new currency by decreeing that old Rs 100 = New Rupee 1 as mentioned in this really good article:

    To make the rupee more valuable, and to economise on printing notes or coins, it is best to let the current rupee die an unsung death. At 65 to the dollar, it is anyway close to retirement age. We should issue a New Rupee which is 100 times as valuable as the existing one. While currency in the bank will automatically be denominated in the new rupee, the currency with the public will have to be brought to banks to exchange for new Re 1 notes

    This solution will largely eliminate 2 major problems India is facing:

    • Black Money Holding: All the stocked black money in physical cash has to come out in the open and get declared, as the only method for the person to use the black money will be by exchanging it at a bank. Since the older currency will entirely be out of circulation, no cash transactions is possible with the older currency, between any private parties.
    • Death Knell To Fake Currency Printers: With the RBI printing new version of currency notes, this is a dual blow to the fake currency makers (in addition to point number 1). All the existing infrastructure will get immediately obsolete with this.
  3. NRI Benefits: This is a more easier one to understand for many of my friends who are out of India. They can help their loved ones back in India better by repatriating more Indian rupees for the same foreign currency they periodically send.
  4. Boost To Indian Exporters: On a more serious note, this is probably one genuine advantage of a devalued currency – which should help Indian export demand to rise. This is a real opportunity for export oriented businesses to grow, which in turn should help reduce the CAD (current account deficit). The reduction of CAD is after all what the RBI and government is (or should be) fighting for to help investor sentiment in India and help Indian economy grow. The recent monetary measures are conversely and majorly targeting on curbing/putting controls on the imports side to bridge the high-import/low-export deficit.