Being an Indian you want United States dollar to become equal to a rupee or you want rupee to be stronger than dollar.
Because you think greater the value of currency, greater the economic strength of the nation.
And you want India to be economically stronger than other countries of the world.
Dollar is the currency of El Salvador too.
1 Dollar to Rupee | 1 Dollar in Rupees Today
This rupee exchange rate tool will help you to get the real time INR exchange rate to Pound Sterling (British Pound) and US dollar to Indian rupee. If you need currency exchange rates of any other foreign currency you can just Google it.
Now transport to a parallel universe where 1 Rupee Is Equal To 1 Dollar, that means let us assume that a rupee equates to a dollar overnight.
We all will feel so much empowered as we have surpassed the currency of the strongest nation of the world. But is the situation really rosy or joy-worthy?
Dollar to Rupee Converter | Currency Converter
What If 1 Rupee Is Equal To 1 Dollar?
Whatever may be the exchange rates of 1 dollar to ruppe. But what will happen if 1 Rupee equates to 1 Dollar? Is it good for the economy? Does the value of currency determines the strength of economy of a country? Let me answer all these questions in this article. Since this article is for startup enthusiasts and students, I will not dig into deep economics and use simple words to explain the scenario.
You never imagined that if $1 = ₹1, the iPhone 6 would cost only ₹650 in India. That’s pretty good enough? Right? No, you will be more reluctant to spend even ₹1 as the value of the currency is very high. By spending ₹650, you will have same feeling while spending ₹70-80,000 as of now.
Those of us who studied Economics may recall this:
The price of USD-INR has fallen and that will buy fewer goods & services than previously; and because supply will not change in the short term, the short run Aggregate Supply (SAS) will meet the shifted Demand curve lower than previously. And hence, GDP will fall.
Full Stop On Exports
India is a major exporter of goods and services throughout the world. Why are we compelled to export our goods and services to US? Just because of the currency difference. And exporting goods helps to generate huge amount of foreign reserves.
For now, as 1 Rupee Is Equal To 1 Dollar, why would I send my goods to US. For example, a batch of apples would cost ₹15,000 in India. But ₹15,000 is now equal to $15,000. Why would anyone send it to America? This will discourage exports and cause resentment in the exporter community at large.
There is impending danger and harm in this. Currency fluctuates with different economic cycles, market forces, purchasing power and many other factors. Not exporting would mean no U.S. Dollars for India and no U.S. Dollars will mean an unfavorable foreign exchange reserve which will eventually affect the future international payment capacity, market intervention, or absorption of any unforeseen external shocks, contingencies or unexpected capital movements.
Job Will Vanish
You all might know that the service sector contributes about 60% to the GDP and provides around 27% employment opportunities. Let me explain you this with an example.
Suppose Raj is a IT expert whose salary is $2,000 (₹1,20,000) per month. When the rupee equates to dollar, the US companies had to pay Raj $1,20,000 per month for the services. Why would any company do that if they can outsource the same workforce from some other nation at $2,000.
By virtue of this circle, more and more people in India will lose jobs and financially more viable options will be called to fill in or jobs will be outsourced. This will lead to loss of jobs in an already unemployment ridden country.
As people get fired, they will be ready to work for lower and lower salaries, until their salary drops below the international level of say $2000. Since 1 Rupee Is Equal To 1 Dollar, that would make great engineers make ₹ 2,000 pm. How would they pay their EMI (mortgage) on homes, cars and gadgets? They cannot and they would default.
The banks would have huge unpaid loans and they will go bankrupt. Investors would exit and government would have print a lot of money to keep the banks alive. That would spike up the inflation and push down the rupee so much that things get back Rs. 60 = 1 USD. At that point, the Indian’s wage will be so low that jobs will move back again and the cycle would continue.
$1 = ₹67, as of current trends. This does not mean that US economy is 67 times stronger than Indian economy. However, this is a largely flawed concept. Government of India is not focused on making the Rupee stronger. But they are dealing with effectiveness to stabilize the fluctuations in the currency rates.
That means the currency should be stronger but with consistency, not overnight. The strength of currency should depend on the productivity of the nation. Any foreign company will pay $1,20,000 as salary to a IT professional if he could deliver 60X more productivity to them.
The net effect of this cycle will infuse strength in the Indian Rupee. Though relativity is important, in this sense it should not be misunderstood and the Rupee should not be considered a weak currency merely because 60 units of America’s currency make just 1 unit of India’s currency.
Real Life Examples
There are plenty of real life examples for this. In 1986, Japanese yen doubled in strength. $1 was about 280 yens until then and that suddenly become like $1=140 yens. Just that completely screwed Japanese economy, from which they never recovered. Why did Japan increase their currency strength if they knew things are going to get worse? It is because the Americans forced them to do so.
This is the reason why RBI is very careful not to let rupee too strong. It is to India’s advantage that $1 equal Rs.60. It helps keep exports high, wages high and imports low.
I see that people are quite confused by what the currency rates mean. People assume somehow that $1 = ₹60 means US is stronger than India. By that logic, 1 Bangladeshi Taka that equals 1.5 Yen, means the Bangladeshi economy is stronger than Japan’s?
Currencies had arbitrary starting points. In 1898, the British government fixed 1 rupee equaled 1 shilling and 4 pence (1 pound = 15 rupees).
You could have set anything. You could have said 1 rupee equals 10,000 pounds as the starting point and designed the economy that way. It would not have mattered at all. The starting points are merely for convenience.
Reserve Bank of India keeps an eye on the exchange rates very closely and regulates it by altering the interest rates of the commercial and nationalized banks.
What matters is, whether the currency is moving up or down over long time. The rupee has gone down against the pound over the last 115 years and that is an indication that India’s productivity has not kept up and/or the inflation was high relative to UK.
The Indian Rupee should become stronger but not by any direct changes. The nation should increase the productivity and provide more value to the currency.