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Is there is no one in charge of the Rupee?

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  • Thiagarajan Arunachalam
    ** Is there is no one in charge of the Rupee? ** ** The Reserve Bank of **India**, ****India****Æs Central Bank, states that its fundamental commitment is to
    Message 1 of 1 , Aug 30, 2013
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      Is there is no one in charge of the Rupee?

       

      The Reserve Bank of India, India’s Central Bank, states that its fundamental commitment is to maintain the nation’s monetary and financial stability.

       

      The Finance Ministry of India is entrusted with managing the Economic Affairs, Expenditure, Revenue, Disinvestment and Financial Services of the country.

       

      While the actions and policies of both these organisations affect the Indian Rupee, neither of them is focused on strengthening the Indian Rupee. The RBI works to contain volatility of the Indian Rupee while the Finance Ministry works to enable growth of the economy by managing the finances of the country.

       

      As a result of neither of these 2 major organizations focusing on the value of the currency itself, the fluctuations of the Rupee may be stable, but over the long term there has been a steady and continuous weakening of the Indian currency, despite there also being growth of the economy.

       

      Q1: Why is a stronger Rupee beneficial to the country?

       

      Q2: Why is a weaker Rupee not beneficial to the country?

       

      While both external and internal factors may be responsible for the decline of the Indian Rupee, if one is to focus on strengthening the Rupee, then the internal factors are in our control and therefore can be worked upon to achieve desired results. There is no organisation however that is focusing on these internal factors and suggesting corrective steps that could halt the slide of the Rupee and then further lead to it’s rising value.

       

      There is no 5 or 10 year plan for where the Rupee should be and what steps can be taken and by whom to reach those levels. Instead there are some people blaming external factors, that are beyond our control, and hence these people can offer few constructive suggestions on how to stop the depreciation of the Rupee. And there are other people who state that the Rupee slide is caused by internal factors and situations, and yet no steps are identified or taken that would stop the slide.

       

      I believe that if we want the Indian Rupee to strengthen, then there is a great need to designate an (official) organisation with experts whose sole mandate and focus is the appreciation of the Rupee. Such an organisation will have recommendatory powers, with implementation being with the RBI or Finance Ministry, as applicable.

       

      Please do give your suggestions for such recommendations.

       

      The belief that the level of the Rupee will be determined by the markets and hence there is no work or effort needed by the government to strengthen the Rupee is a naïve view as markets in emerging economies like India’s are still not free of distortions and often come under the influence of large players with special interests. Hence a market-determined Rupee level is unlikely to be a level that is ideal and beneficial for India’s development and growth. I am not advocating capital control, but rather stating that a clear direction and focus is needed for the Rupee.

       

      Without a body that focuses on strengthening the Rupee, our country is like a ship at sea; the RBI sees that there is no undue rocking (volatility) of the ship, while the Finance Ministry sees that the ship keeps going, providing fuel so that it can move ahead at x km/hour. But where the ship is going and what direction it must take, no one knows. To provide direction and to take decisions regarding what level the Indian Rupee should reach is precisely the responsibility that should be given to an organisation, constituted specifically for this purpose.    

       

      I would appreciate your feedback and discussion on this.

       

      Regards,

       

      Vinay

       


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