This would be a very interesting question to ask, Why can’t one Indian rupee equal one U.S dollar? what will be its pros and cons? What are the factors affecting the change in currency rate? But as we know presently currency rate is at 1 dollar it equaled to 73 rupee which is clear to be known. Whether it is good or bad for us? We can imagine a hypothetical situation to image the scenario
You would be shocked to know that during the time of independence the Indian rupee is equal to U.S dollar. But due time it had changed drastically due to various reasons; for example 1973 oil crisis brought by organization of Arab petroleum exporting countries proclaimed an oil embargo which brought an inflation, 1991 Indian economic crisis which was due to poor economic policies back then resulting in a trade deficit this crisis had devalued by 18 – 19% ,2008 financial crisis which dropped GDP of India from 9% to 7.8% ,1962 Indo-china war,1965 Indo-pak war.
There are various reasons which affect the currency rate of a country , strength of a currency .A major factor that influence the change in currency rate can be evaluated to whether the rate depends upon.
The factors influencing the change in currency rate :
- The difference in inflation rate: The inflation rate of countries impacts their currency value. Countries with low inflation rate show a rise in their currency value proportionally the country with a high inflation rate will have depreciation in their currency value
- Terms of trade: a countries balance of payment give the relation in international trade. It includes the ratio of a countries export to import of goods impacts the countries currency value, a country with a high export ratio to import will likely have high currency value consequently country with high import to export will have a low currency value
- The difference in interest rate: exchange rate, inflation rate, interest rate are interconnected. the country with high interest rate will like to attract lenders and thus increase currency value by cutting interest rate causes depreciation in currency value
- Public debt: countries with large/huge public debt likely to attract less to foreign investment, by small debt is likely to have investors thus cause raise in currency value
- Political stability: political stability proportionally affect currency value thus politically stable country likely to attract lenders and have raise in currency
Pros
- If the dollar and rupee equaled tourism to foreign countries would be much cheaper and affordable than the current situation.
- Luxury items like an apple product or a tesla car would cost much cheaper.
- Import duties on goods across countries would cost less and goods will less expensive.
- ease for the students to study in a foreign country which now is not affordable to all.
- people will likely to have the same salary.
Cons
- the export will be much expensive as Indian goods will be more expensive to other countries. If it’s expensive why will any country buy it?
- The country will likely have no foreign investment. investor invest in such countries because the expense is much less than other
- Service sectors will be affected as companies will not likely to pay the same amount to people but try to move to less expensive countries. service sector in India contributes nearly 60% of GDP will have a huge crisis.
- This will cause a huge reason for unemployment in the country and buying power of people will gradually decrease.
- This will cause economic slow down in the country.
- companies in India will move out due to expensive maintenance and expensive employment and cause economic crisis as such in 2008
Verdict
A developing country like India cannot afford to have a situation where the rupee is equal to the American dollar.
“Too many people spend money they earned..to buy things they don’t want..to impress people that they don’t like”
Vishaya World 