Why US dollar becoming more stronger against Indian Rupee

 "Indian Rupee at record low"

"रुपये का डॉलर के सामने भारी गिरावट"

Ever since I grew up, only these kind of news have seen about the Indian rupees.

Since last few days, again the headline is the record fall in the rupee, the price of one dollar crossed 80 rupees. Often the value of the rupee against the dollar is linked with the prestige of the country.

The price of the currency of any country is based on the basic principle of the economy, demand and supply. In the foreign exchange market, the currency whose demand is high will also be high, the currency whose demand is low will also be low. It is fully automated. Governments cannot directly affect the rate of currency.

There is also another way to determine the value of the currency. Which is called Pegged Exchange Rate i.e. Fixed Exchange Rate. In which the government of one country fixes the price of its country's currency compared to that of another country. This is generally done to increase business and control inflation.

For example, Nepal has adopted a fixed peg exchange rate with India. Therefore the cost of one Indian rupee is 1.6 Nepalese rupees in Nepal. Apart from Nepal, many countries of the Middle East have also adopted fixed exchange rates.

But what about the countries that have reduced the value of their own currency? Due to the reduction in the value of the currency, not only did the economic condition of those countries improve, but those countries were also included in the selected better economies of the world.

What is currency devaluation and depreciation?

Currency depreciation occurs when the value of a currency decreases at the floating exchange rate. Currency devaluation occurs when a country deliberately reduces the value of its country's currency. Which is also called devaluation of currency. For example, China devalued its currency. In 2015, the People's Bank of China (PBOC) reduced the value of its currency, the Chinese Yuan Renminbi (CNY).

How does the demand for a currency increase or decrease?

Dollar is the largest currency in the world. Most of the business in the world is done in dollars. We have to pay dollars for the goods we order from abroad and when we sell, we get dollars. In the current situation, we are importing more and exporting less. Because of which we are giving more dollars to other countries and we are getting less dollars. In simple language, we are selling less goods to the world and buying more.

Why is the dollar value rising against the rupee?

The value of the dollar is not only increasing against the rupee. The value of the dollar has increased against all the currencies around the world. If you compare with the world's top economy countries, then you will see that the value of rupee has not fallen as much as the rest of the countries have fallen against the dollar.

The euro is at a 20-year low against the dollar

A few days ago the price of one euro became almost one dollar. Which was around $ 1.5 in 2009. In the first 6 months of 2022, the value of the euro has fallen by 11 per cent against the dollar, the yen has fallen by 19 per cent and the pound has fallen by 13 per cent. In the same period, the Indian rupee has depreciated by about 6 percent. That is, the Indian rupee has fallen less against the euro, pound and yen.

Why is the dollar strengthening? 

The Russo-Ukraine war caused instability in the world. The demand-supply chain deteriorated. Investors pulled out of the markets around the world out of fear and invested in safe places. American investors also pulled out money from India, Europe and the rest of the world.

The US has historically been raising interest rates to control inflation. The Federal Reserve had said that it would increase interest rates from 1.5 percent to 1.75 percent in three quarters. Investors are also investing money back in the US due to rising interest rates. At the time of the economic recession of 2020, America had transferred cash directly to the account of the people, this money was also invested by the American people in the rest of the world, now this money is also returning back to America.