HOW FAR WE CAN REPLACE DOLLAR WITH RUPEE?
Present method of fixing international exchange rate may have deficiencies. At least some economists may agree with this statement. For the trading of commodities, USD is accepted all over the world. That must be the prime reason to have the tendency of dollar always on the upper side. We may now find the prime factors that determine currency value. Inflation is the significant one in this. When price of a commodity rises more currency is needed to purchase the commodity. Therefore, exchange demands more currency. Another factor is interest rate. Whenever inflation takes place the Central Bank raises the interest rate to attract foreign currency and thereby bring down the inflation. Higher interest rate always boost the inflow of foreign currency and thereby enhance the exchange rate of the local currency. Political instability of a country and the country's existing public debt are also major factors influencing in bringing down the exchange rate of the local cur...