The rupee has touched a record low today i.e. on July 19 and it has opened above 80. The rupee has opened weak by 4 paise against the dollar today. The record low against the dollar opened at Rs 80.01 per dollar. Earlier yesterday, the rupee had closed at 79.97 against the dollar. The rupee has lost more than 2% in the last month. At the same time, the rupee has fallen in front of the dollar by 7.4% in one year.
The government blamed crude oil prices for this
Finance Minister Nirmala Sitharaman gave reasons for the breakdown of the rupee in Lok Sabha. "Global factors like the Russia-Ukraine war, rising crude oil prices, and tightening global financial conditions are the main reasons for the weakening of the Indian rupee against the US dollar," he said.
How is the value of a currency determined?
There are many reasons for currency fluctuations. If the value of any other currency decreases in comparison to the dollar, then it is called the falling, breaking, and weakening of that currency. In English - currency depreciation. Every country has reserves of foreign exchange, from which it conducts international transactions.
The decrease and increase of foreign exchange reserves determine the movement of the currency of that country. If the dollar in India's foreign exchange reserves is equal to the US rupee reserves, then the value of the rupee will remain stable. If the dollar decreases with us, the rupee will weaken, if it increases, the rupee will strengthen.
Where is the loss or advantage?
Disadvantage: Import of crude oil will be expensive, which will increase inflation. Vegetables and food items will be expensive in the country. On the other hand, Indians will have to pay in dollars. That is, traveling abroad will be expensive, and studying abroad will be expensive.
Benefit: Exporters will be benefited because the payment will be in dollars, and they will be able to earn more by converting them into rupees. This will benefit IT and pharma companies selling goods abroad.
Why is the currency dollar-based and since when?
Most currencies in the foreign exchange market are compared against the dollar. Behind this is the 'Bretton Woods Agreement' during the Second World War. It was proposed to create a neutral global currency. However, then America was the only country that had emerged economically strong. In such a situation, the US dollar was chosen as the reserve currency of the world.
How is the situation handled?
The central bank of any country has an important role in handling the weakening of the currency. In India, this role belongs to the Reserve Bank of India. He tries to meet its demand in the market by buying dollars from his foreign exchange reserves and from abroad. This helps to some extent in stabilizing the dollar price against the rupee.
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