EXPORT EARNINGS TOO A CAUSE FOR INFLATION

Many countries in the world including India, balance of trade is maintained in USD. The normal procedure is that when export revenue of all private agencies received in USD are credited in government account and in turn the payment to the concerned exporters are made in the relevant currencies of the countries. The foreign exchange thus goes to the government do not have any considerable impact on the internal economy but when equal value of local currency is circulated it causes inflation. Though it doesn't stand with the demand and supply theory, excess circulation of money brings down the value of the local currency. This in turn becomes like too much money run after too less number of goods. That causes price rise or inflation. This is the same thing happens in export revenue too.

K V George