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 currency. Current account deficit is another serious factor contribute negatively to exchange rate. When the import value is more than the export value, the balance of trade become negative and the country need more currency to pay off the debt and cause fall of the exchange rate of the country's currency. Then comes speculation. Currency is constantly traded under the consideration of all the above factors. During the trade, those involved are constantly watching to find weakening signals of the country's currency that brings down the exchange rate.

When we look broadly on the parity of exchange rate between US Dollar and Indian rupee, we may tempt to have a quick conclusion that dollar is always on the positive side and rupee on the negative. Now, if we want to take a result oriented approach in this, we must do two things. One is to make the demand of rupee more and bring down our demand of dollars considerably. India has already allowed 18 countries including UK, Germany and Singapore to transact in rupee.

Given below is the exchange rate of US Dollar to Rupees from 1947 onwards.

Year            rate of rupees

                    per dollar

1947                 4.16

1948                 3.31

1949                 3.67

1950                 4.76

1960                 4.76

1970                 7.50

1980                 7.86

1990               17.50

2000               44.94

2010               45.73

2020               76.38

2022               81.35

2023               81.94

India may take urgent steps to take up transaction in rupees with over 60 countries across the world after ascertaining all relevant aspects. By doing so we must ensure that the rupee is upgraded in exchange with dollars.

K V George