It’s
time for Indians to get real about the Indian rupee’s global role.
India’s botched effort to bypass the dollar to buy Russian oil shows the
limits to internationalizing its currency.
A year ago, there was
palpable excitement in New Delhi around buying Russian crude. The
Reserve Bank of India allowed foreign banks to open special rupee
accounts with local lenders to encourage trade settled in its home
currency. Moscow-based Sberbank and VTB Bank were the first to come on
board. The idea was that importers would credit these accounts, whose
surplus could be invested in Indian government bonds.
For sellers
of Russia’s flagship Urals crude in the spot market, avoiding dollar
clearance meant bypassing the Western banking system and sanctions.
Yet,
the plan hasn’t really worked. Russia’s banks are reluctant to
accumulate balances with lenders in India in a non-convertible currency
that has lost half its value against the dollar over the past 15 years.
Throw into the calculation an expected annual rate of 3% to 4% currency
depreciation, and earning a 7% yield on a 10-year rupee bond doesn't
seem like such a big draw.
Why is the Indian rupee always falling
in value? That's because India runs a chronically huge overall trade
deficit every year. Hence in the foreign exchange market, there are
always more Indian importers selling the rupee to buy foreign currencies
than Indian exporters buying rupee against their trade receipts. As
importer supply of rupee overwhelm exporter demand for rupee, the rupee
naturally falls in value.
Anonymous
3 comments:
Indian "currency that has lost half its value against the dollar over the past 15 years" - so how much have Temasek and GIC's investments in India lost their value over the past 2 decades based on rupee foreign exchange translation losses alone ?
Stupid people are extremely stubborn.
Gamblers would double the bets when losing.
Gamblers gambling with OPM would want 'all in' to make or break. They have nothing to lose. May even have a cut from the winnings of the opposite side. They cannot lose.
The beauty of using OPM to gamble is a win win situation for exploitation. High risk can be taken, and if high returns are made, high bonuses are the result. If high losses result, there is the contract to fall back on, with high compensation to match, if they take responsibility and bite the bullet by being told to quit.
You see, it is a win win situation taking care of OPM. That is why some jobs are always held by some selected people, with even the prerogative to resign and the privilege to return to the same position after resigning.
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