Dollar drop... what's it all mean?

proxyindian

After months at trading at 50 Rupees to the Dollar, it has now dropped to 46-something all in a week. This is about what it was last fall when we went. I don't really understand what influences the exchange rate. Can someone help out? (Please feel free to speak baby-talk to me as economics is not my favorite topic and I tend to space out after a few sentences )

Also, not that I should panic, but what is the worst it could get? Two years ago, we were getting 37 Rupees to the buck. That seemed low but we certainly managed. We'll be there in 5 months, so I'm not worrying, especially as its something I've no control over.

And what is the impact the dropping Dollar would have on India's economy? I was just googling this and found an article about Tata saying that it would be bad for their top line if it fell below 42.

(PS I'm at work now... I work in a library in suburban Chicago and an Indian woman is walking by the desk with her toddler. The little girl has on anklets that are jingling.... oh, it is so cute! This one thing has made my Friday night shift worth it!)

camelgirl

I don't really understand it but I did find this article which helps explain, starting the 3rd paragraph down,

http://www.dynamicexport.com.au/arti...ncy-fluctuate/

I know it has had a real impact on my travels over the years. Many years ago in the early 1970s I was in Sweden & the US dollar was sinking so fast the banks didn't want to accept them!! It was a nightmare. Every day we got less & less Swedish currency for our $.

But for many years while our dollar was King of the World, everywhere seemed a bargain.

Then recently, it tanked again and we have completely avoided Europe & the UK because the value of the US dollar meant we were paying double for everything. $5 for a cup of coffee--no thanks.

Soon I'm heading to London where our dollar is a bit bitter than last year but losing value as I write.

Of course, the opposite happened for British & Europeans who flooded into the US finding everything here dirt cheap! We had Dutch friends visit last summer & they were buying things that I wouldn't go near that to them was really cheap! Actually, for them it was like it was all on sale!

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samuelcooper

A couple of weeks ago I was trying to figure out how I could open a bank account in India, buy rupees with dollars, put them in the bank for use when I visit in August. Just a fantasy at the time but now I wonder if it might not have been so dumb!

proxyindian

Yes, England is out of the question for us. We went 3 times and each time it was a relief to get back home where a Dollar equaled a Dollar. We can't actually even afford that rate! So India has been our yearly chance to be "rich" and we scrimp and pinch here so that we don't have to stay in Paharganj. But can you imagine if a Dollar equaled 1 Rupee? "That will be $350 for that Kingfisher."

steven_ber

I think you're best to assume you'll get Rs40 to the dollar, every time you look at a hotel price, a train fare, everything, just think of Rs40, until you're convinced the rate is Rs40.

Then even if it drops to Rs42, you'll still feel you're doing OK.

I saved all year for my last trip, then 2 weeks before I started my trip, the £ suddenly dropped from it's normal Rs85 to Rs72, a 15% drop in less than a week, and it slowly dropped down to Rs65 whilst I was in India, it seemed every time I changed money the price was lower.

I was on a fairly low budget already, and in the end I had no choice but to come home 6 weeks earlier than planned.

The £ seems to have recovered slightly to Rs75, but I'll be assuming a rate of Rs70 for my next trip.

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steven_ber

I've heard that the Rupee is 'tied' to the dollar price, so does anyone know......

Is this true?

How flexable is this tie?

Is there a point (an exchange rate) that India will not go below or above? (will 'break' the tie if the dollar becomes too weak/strong)


A slightly related question...

The dollar has been sliding for a few years now, and I have a feeling the US government are OK with this, do members think the US will emerge from the credit crisis a little better of than Europe because of the low dollar? and has the low dollar sorted out the 'Balance of Payment' problem it used to have?

LilBoy BigTown

I am no expert, but this is my understanding.

Dollar has been considered a safe heaven during bad economic times. A lot of dollar weakness is due to the crippled state of US economy and the govt debt.

In UK, the govt debt to its GDP is nearly 100%, which is staggering. UK's investment ratings have been recently downgraded by Moody's (ratings agency). A lot of people see that happening to US over the coming years. There are murmurs around that US will lose its AAA ratings which allows them to borrow money easily and at a cheaper rate. This has made people nervous and they are dumping dollar in favour of other currencies.

Secondly, world trade has always been done in US dollars, a couple of months ago there were calls for the world to start trading in a different currency. This has added to dollar weakening further.

Coming to the strength of the rupee, obviously people consider the Indian economy to be growing and becoming much stronger and bigger over the coming years. Since March, India has recived $4b in foreing investments which is massive (but nowhere near China's) and this is only expected to grow after the recent elections.

Also, at present India's budget deficit (the difference between what govt raises through revenues and taxes and what it spends) is about 10% and this is considered alarming. However, the recent election victory means the Govt can now open several sectors, which were previously unaccessible to the foreigners, and get billions for it.

Also, the govt has until now been unable to sell its stake in several state held assets (due to the pressure from Communists) and raise funds. They are now expected to do this and bridge the deficit further. This means that the countries investment ratings improves, investor confidence rises and more foreign money comes into the country.

All this foreign money coming into India provides further impetus to the rupee. Some commentators are forecasting dollar to fall to 45 in the short term, to 40 in medium term and closer to 35 in the long term.

So basically, the recent drop is to some extent due to the weakening dollar, but its more due to the rupee appreciating.

jituyadav

It’s a simple case of demand and supply. First about the rupee. When FII’s want to invest in india, they bring dollars and more dollars means less value. When they take the dollars out, it creates demand for dollar and rupee falls in value. That is why when Indian equity market rises, dollar falls and when Indian equity market falls, dollars appreciates in value. Of course, there are other dollar incomings and outgoings like corporate demand etc. Indian rupee is not convertible which makes its movement restricted. There is no peg as such but RBI intervenes when it feels that dollar or rupee is going too far too soon.
About the dollar and other currency. They trade in pairs and when one country gets negative economic data that countries currency falls. This happened this week in case of sterling. Suppose if sterling depreciates in value against dollar, it will have indirect impact on rupee sterling too. Each country keeps foreign reserves and it used to be dollar. But now the shift has been into Euro which is the reason for dollar depreciation. US has printed so much amount of dollar that nobody knows how much dollar currency is there in the world at the moment. And it is the biggest debtor of the world and owes the world more than $6 trillion at most reasonable count. If world loses faith in US economy, it will be the end of US as we know of today but that will take some strong negative events.

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camelgirl

Don't bother. If you could even do it, and I'm pretty sure you can't, it wouldn't really help.

If you were planning on living in India, well then it would be worth doing what you suggest. But opening bank accounts in India isn't so easy for foreigners.

When you visit in August, just plan on using an ATM machine linked to your home checking or savings account or whatever. Bring some T-checks and US dollars for emergencies--occasionally its hard to find an ATM that will work with your card but you can almost always use a T-check or US dollars.

Digital Drifter

Proxy,

Not trying to scare you or something. But the Fed is essentially creating currency out of thin air to finance its spendings. so this swings in currency will be a feature and not a bug in the system for next few years. It's all bits of paper not tied to Gold but a rather a basket of stuff. Now, lots of people trust the US gov. to do the right thing for them (and by people, it's not YOU). But everyone is jittery in these times. And Moody's and S&P have issued veiled threats that the US currency may lose it AAA status. Coupled with the unemployment news, declining exports, shrinking GDP numbers, investors are in no mood to purchase US bonds that finance spending.

The full sobering picture that you MAY want to read is

http://www.nybooks.com/articles/22756

A tiny set of people managed to wreck it at the craps table. So currency fluctations swing like crazy depending on whether the traders took their morning prozac or not, now.

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camelgirl

I've bookmarked that article to read when I have time. Since it is written by people I respect, it should be enlightening!

Thanks.

BTW, nothing new about money having no intrinsic value! Just bits of worthless paper! Neither did the Tulip bubble in Holland (which collapsed) http://en.wikipedia.org/wiki/Tulip_mania or those big "money" stone circles on the Island of Yap!

We humans are just strange!

I was recently in Dubai & learned that the lower the number of the license plate, the more it costs. The plate can cost more than the car It's a major status symbol Here's $50,000 for the number 12

Yes, humans are strange!

samuelcooper

Thanks. Yeah, I know you can't do it. It was just one of those "what if" moments. I was helping an Indian friend send a FAX to his bank in Tamil Nadu not long ago. If I understood him correctly, you have to withdraw dollars, have them exchanged, then deposit them in a different type account - which makes sense. Some such, anyway. He was also having trouble getting the banker to turn loose of the money, which was kind of funny. The banker wanted to know the reason he was withdrawing it before he would let it go. The kind of thing I had to deal with many years ago in SC!
When I was there before I had no trouble getting rupees with my ATM card except in more rural areas where the atm's wouldn't cooperate.
I hadn't really thought about taking T-checks with me. If I have to go into a bank to cash them, I wonder if the banker will want to know what I plan to do with it.

proxyindian

I'm glad I brought up the subject, but I think it is only the greedy beggar in me that is overly concerned with the exchange rate. Two years ago we managed to get by with only 37 Rupees to the Dollar.

But here's something to rejoice about.... I really am glad when I read about India doing well. For example, here's the latest post from The Delhi Walla blog: http://thedelhiwalla.blogspot.com/20...-facelift.html This story has got us all excited and feeling good.

palerider

Any exchange of money, on any level, will incur a fee of some sort, so just be aware of what you're changing, and swapping around. It may cost more than you think. In australia, our dollar isn't connected to the rupee, so at the moment, it's worth about 37 rupees, instead of the normal 30.
Makes it a bit easier to get around.
In 1987/88, I was in Europe. The crash came, and a lot of people were out of pocket. The strong currency then was deutchmarks, but many aussies had American currency TC's.
I lost nothing, but quite a few people had their money value halved overnight.

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rebeccam

I heard that the USD is no longer the standard in international currency--it is now the Chinese yen!! if so, that would explin the dropin the dollar's value too.