U.S. dollar stability is coming under scrutiny as Asian currencies have made some impressive gains against it. Markets have been reacting, with some of the movement tracing back to a large wave of dollar selling triggered in Taiwan. What’s notable is how sharp and widespread these gains are across not just one or two, but several currencies: the Singapore dollar, the Korean won, the Malaysian ringgit, and even the Hong Kong dollar are all areas where we can see this movement reflected.
The Taiwan dollar’s stunning two-day surge of nearly 10% showcased the strength of this trend, with the similarly resilient Singapore dollar now floating near its loftiest heights in more than 10 years. Even Hong Kong’s currency, which is pegged to the U.S. dollar, pushed toward the upper bound of its trading band. Long a bastion of dollar stability, the system in Hong Kong looks increasingly like a pressure cooker, just like those in Taiwan and Singapore, with the currencies under pressure likely to give way to the atmosphere of rising dollar insecurity.
Longstanding Dollar Investments Face Reassessment
For decades, Asian economies have taken their trade surpluses and invested them in U.S. assets, with a particular focus on Treasuries. This practice, heavily shaped by the painful memories of the 1997-1998 crisis, has long been a bedrock of global financial flows. But in the last couple of years, it seems that this relationship might be changing, with a number of analysts indicating that the investment flows are moving in the opposite direction.
Investors and exporters in China and other significant Asian markets now confront a decreasing U.S. appetite and an unstable economic forecast. This has led many to reconsider the sagacity of funneling funds into American markets. Financial companies are observing a noticeable uptick in hedging and repatriation moves, which signals a broadening inclination to keep capital in our neck of the woods.
Market Adjustments and Strategic Moves
In the midst of the tumult, reports suggest that Taiwan’s central bank has taken steps to stabilize the currency. Traders, however, observed heavy dollar selling that seemed to reflect at least tacit approval from authorities. Meanwhile, in Hong Kong, the central bank confirmed it has been trimming its U.S. Treasury holdings while diversifying into non-dollar assets. This signals a larger pivot.
For a long time, funds that worked with dollar-based trades had been reaping profits. Now, those same funds are unwinding their positions. A strategy used in the Hong Kong forwards market that was once a reliable source of profit has reversed as the Hong Kong dollar has gained strength. Analysts say this is a clear sign that macro funds and leveraged players are moving out of the traditional dollar trades that used to work for them. It’s all a part of the Asian finance landscape.
What Lies Ahead for Global Currency Markets
This surge in Asian currencies might be the early stages of a broader de-dollarization trend, experts say. Large amounts of foreign currency, especially in China and Taiwan, are now being repatriated or redirected, and this is altering the flow of capital that has long underpinned the dollar’s strength. Financial institutions like UBS now put the potential dollar dent from Taiwan’s redirect at up to $70 billion.
Although Taiwan’s government has publicly denied that recent U.S. trade discussions involved foreign exchange, the participants in those markets are concerned. They take the sustained strength of Asian currencies as a signal that the old, unquestioned reliance on the U.S. dollar as the world’s only true global currency is giving way to a new, less certain future.
On Monday, the Indian rupee staged a swift rally, momentarily appreciating to 84.96 against the US dollar before settling at 85.03. This was the rupee’s best trading day since December 20, 2024, and a marked improvement from a close of 85.49 last Friday. Dealers attributed the gains to very strong buying in domestic equities and active dollar-selling by foreign banks. In fact, the rupee’s 0.49% intraday rise was the largest single-day gain since April 11, clearly reflecting a market that has taken a strong shine to the currency.
At the start of this month, the rupee had also dipped beneath the 85 threshold on April 4, reaching as low as 84.95. However, meagre customer demand and a stronger dollar due to rising U.S. Treasury yields, along with expectations of a more aggressive Federal Reserve, kept the rupee under pressure. On Monday, the Indian currency had gained some demand along with a slight boost coming from a more stable dollar. By the end of trading, the rupee had managed to push up a little, offering some direction.
Equity Markets and Foreign Inflows Boost Sentiment
The resurgence of the rupee was fueled by a jump in the domestic equity market, where heavyweight stocks like Reliance Industries vaulted over 5 percent after they too beat quarterly earnings estimates. Reliance’s stellar performance helped lift the broader market sentiment, in turn attracting foreign portfolio investment back into Indian equities.
A declining dollar worldwide also added to the rupee’s momentum. The dollar index, which measures the greenback against six major currencies, dipped to 99.6. Meanwhile, other major global currencies, including the euro, pound sterling, and a number of Asian currencies like the Thai baht and the Malaysian ringgit, gained some ground against the dollar in April and early May, which further boosted the rupee’s trajectory.
While Treasury officials observed a psychological resistance level around 85, they said that a convincing breach at that level could open a path for further appreciation. Most heads of Treasury believe that if the momentum continued, there was a chance that it could open below 85 in the next session and reach an additional movement of anywhere from 60 to 70 paise beyond that.
Bond Yields Rise Amid Foreign Selling
Though the rupee saw gains, the government bond market felt some pressure. The yield on the 10-year benchmark bond rose 4 basis points, to 6.40 percent, up from 6.36 percent at the previous close.
Dealers linked the sell-off to profit-taking by foreign banks that had purchased the bonds. And they cited as reasons for the seemingly contrary movement the uptick in India-Pakistan tensions and the need for some participants to take profits after a recent run in both the rupee and the bond market.
Accordingly, the authorities aim to offer a fresh 10-year bond, with INR 30,000 crore of securities available in the first auction on Friday. The new bond is likely to see strong demand, given the risk-off sentiment in the markets and the surging demand for fixed-income assets. The positive outlook for bonds is brightened further by the Reserve Bank of India’s announcement that it would buy government securities in open market operations worth INR 1.25 trillion.
The US Dollar is the most commonly held currency in the world today holding over 60% of global foreign reserves. All the countries across the globe, including India, measure their currency values against USD in the global market. The fluctuating value of any currency against USD 1 is called the exchange rate.
Global trade is possible because of the existence of exchange rates and it is an important determinant of any country’s economic prowess.
It has been 75 years since India became a free country. Since then, the country’s currency has been on a roller-coaster ride against the US dollar. There have been various reasons for the largely downward trajectory of the INR’s journey including economic reforms, geopolitical issues, and even international issues. Currently, the Indian Rupee’s value against USD 1 is approximately INR 82.
It all began with the Bretton Woods Agreement in 1944 which required each country to measure its currency against the US Dollar. The dollar itself was convertible to gold at the rate of USD 35 per ounce. Being a part of this agreement, India followed the par value system of relative exchange rates. As the country was under British rule, INR value was derived from the British pound which was GBP 1 equaled INR 13. Similarly, GBP 1 equaled USD 2.73, which roughly translated to USD 1 equalling INR 4.76.
History of Indian Rupee vs US Dollar
INR Journey Post Independence
The journey of the Indian Rupee against the US Dollar can be mapped in different phases since India won independence.
Phase I – From Independence to the 1960s
India gained independence from British rule on 15th August 1947. It was a time of great turmoil as the country’s economy was in shambles. In a bid to jump-start the economy, the first prime minister, Jawaharlal Nehru adopted the five-year plans from Russia and began consistent loan borrowing in the 1950s which substantially increased in the 1960s.
However, even with increased borrowing, the country’s economy was facing a budget deficit which was further aggravated by the two wars in the decade. The first was the Indo-China war of 1962 and the second was the Indo-Pak war of 1965. Then struck the natural disaster of drought in 1965-1966. All of these added to increased spending on defense which reached a high of 24.06% of the total government expenditure.
Also, by 1966, the Indian Rupee finally moved away from the rate comparison of GBP 1 equalling INR 13 to a direct comparison with the US Dollar. All the economic upheaval of the previous years led the then Prime Minister to devalue the Indian Rupee to INR 7.50 against USD 1, which till then, had held a constant value of INR 4.76 against USD 1. This devaluation, in return, led to cheaper exports and expensive imports resulting in sharp inflation.
Phase II – Reduced Oil Production by OAPEC – The 1970s Decade
This was a decade of two major changes. First, the Bretton Woods Agreement collapsed in 1971, which meant India adopted the fixed rate system, linking its currency exchange rate to the UK Pound Sterling. A couple of years later, in 1973, the Organisation of Arab Petroleum Exporting Countries (OAPEC) decided to reduce oil production. By 1974, the INR value further deteriorated to INR 8.10 against USD 1 in reaction to the oil crisis. In a bid to ensure stability and to its currency and to ensure that the increasing disadvantages of associating with a single currency were curbed, the Indian Rupee was pegged to various other currencies as well.
Phase III – The 1980s and 1990s
The two decades of the 1980s and 1990s were politically unstable for India. The assassination of Prime Minister, Indira Gandhi, in 1984 reduced foreign investor confidence in the economy. A few years later, in 1991, the Soviet Union collapsed, which was, till then, a crucial trade partner of India. This led to a sudden and large export fall. The Persian Gulf nations had doubled crude oil prices just a year prior leading to India facing a serious balance of payment crisis. The fiscal deficit of the country decreased to 7.8% of the GDP and the interest payment rose a whopping 39% of the total government’s revenue. Furthermore, the WPI inflation within the country was around 14%. The country was on the brink of bankruptcy and had no choice but to further borrow money from IMF (International Monetary Fund) against its gold reserves.
This severe economic crisis of 1991 was dealt with by the then government by further devaluing the Indian Rupee and by 1992 the exchange rate of USD 1 was INR 25.92.
Phase IV – The 21st Century
The Indian Rupee’s decline continued into the new century and by 2002 it was valued at INR 48.99 against USD 1. However, this also proved to be a turning point in the country’s economy as Foreign Direct Investment (FDIs) increased within India and sustained till 2007 when the Indian Rupee appreciated reaching INR 39.27 against USD 1.
Unfortunately, the global financial market collapsed in 2008 ending the upward trend of the Indian Rupee and by 2009 it fell to a record of INR 51.75 against USD 1. Contributing global and domestic factors saw the INR further fall to 56.57 against USD 1 by early 2013.
Three years later, in an effort to combat corruption and black money within the economy, the Indian government announced demonetization which discontinued Rs. 500 and Rs. 1000 notes with immediate effect. This led to almost 86% of the country’s currency being invalid adversely impacting consumption patterns, investment, and income. It was also a major push to a new digital India, thereby increasing cashless transactions. However, in 2016, the value of the Indian Rupee further decreased to INR 68.77 against USD 1.
Last but not least, was the global economic crises that followed in the wake of the coronavirus pandemic of 2020 and the ongoing war between Russia and Ukraine. Currently, the exchange rate of the Indian Rupee against the US Dollar is approximately INR 82.7.
The journey of the Indian currency against the US dollar is also a testament to the economic journey of the country since independence. Being one of the fastest-growing economies today and also one of the top 5 in the world, India is in a strong position of recovery. It will be interesting to watch how the Indian currency fares against the US dollar in the coming days.
FAQs
What factors affect the exchange rate between the Indian rupee and the US dollar?
Several factors can affect the exchange rate between the Indian rupee and the US dollar, including:
Interest rates
Inflation
Economic performance
Political stability
Trade balance
Capital flows
Monetary policies
How has the exchange rate between the Indian rupee and the US dollar changed over time?
The exchange rate between the Indian rupee and the US dollar has varied over time due to economic and political factors. The rupee has appreciated and depreciated against the dollar at different times, influenced by global economic conditions, monetary policies, and geopolitical events.
How do changes in oil prices affect the exchange rate between the Indian rupee and the US dollar?
Oil price changes impact India’s import bill and can affect the exchange rate between the Indian rupee and the US dollar. Higher oil prices lead to a higher import bill, putting pressure on the rupee, while lower oil prices can support the value of the rupee.
What is the role of the Reserve Bank of India in managing the exchange rate between the Indian rupee and the US dollar?
The RBI manages the exchange rate by intervening in the foreign exchange market, using monetary policy tools, and managing India’s foreign exchange reserves.
The Bretton Woods agreement made the US Dollar the official leader of the World’s reserve currency supported by the world’s largest gold reserves. This was after the Second World War. Even today the USD is one of the world’s strongest currencies. The Dollar bill as we know it today was printed in 1914. Even today, the central banks of various countries, including India, hold almost 60% of their reserves in USD.
In simple terms, the value of any currency increases with an increase in the demand for it and decreases with the decrease in demand for it. On the global stage, the force of currencies is determined by central banks. However, the demand for the said currency is determined by the demand for the goods and services produced by the country.
The same rule applies to foreign exchange requests. The higher the demand for foreign exchange, the more currency falls.
Why the Indian Rupee Is Falling Against the Dollar?
In the post-Covid world of 2022, India has seen a steady decline in the value of INR against the dollar. It is imperative to understand that the Indian Rupee has steadily downgraded against the dollar for several decades. One of the key reasons for this has been the rising inflation affecting the Indian Economy.
Currently, the Indian Rupee is valued at around INR 79 to 1 USD. The last couple of weeks has seen the Indian Rupee reach an all-time low value of INR 79 against 1 USD. There are several reasons for this steep decline, some domestic as well.
One of the key reasons for this decline is the pullout of FIIs in an uncertain global market. Added to this are the geopolitical uncertainties due to the Russia-Ukraine war.
This has led to investors retreating from emerging markets like India to the safety net of the USD. According to the latest figures, the Foreign Portfolio Investor outflow is to the tune of 2.11 Lac Crore.
Reasons domestic in nature include the steep price rise in crude oil. Added to this pressure is the elevated cost of edible oil again due to the Russia-Ukraine conflict. In light of the fact that most of India’s crude oil and edible oil requirements are imported, this elevated price will continue to put pressure on the Indian Rupee.
The Indian Rupee’s performance has been backed into a corner. Worsening terms of trade on the global platform, geo-political instability, FIIs foreign institutional investor outflow and the crowning glory – RBI’s FOREX stance. However, the scenario is not as grim as it looks on the outside.
On the Global Stage, the Indian currency has held up against the dollar a far sight better than some other counterparts. This showcases a light at the fast-approaching end of the tunnel.
US Dollar to Indian Rupee Exchange Rate
What Does the Future Hold for Indian Rupee?
The effects of the war in the short term will be seen in the upcoming quarter which might continue to put pressure on the Indian Rupee. In the short-term future, the Indian Rupee may settle down between INR 77 to INR 79 against 1 USD. However, there are many reasons to look forward to a strengthening INR in the global markets in the future.
First and foremost is the fact that the RBI has a comfortable FOREX reserve. Even though the Indian current deficit is well over 90 billion USD, this reserve would help prevent further weakening of the Indian Rupee against the USD.
While the COVID-19 pandemic brought the world to a standstill for a few months, it also triggered companies to relook at their internationally located manufacturing units, most of them based in China.
The overall unfriendly policies of the Chinese Government have also prompted most manufacturing companies to start looking at alternative emerging markets like India and Indonesia to set up their plants. This is also likely to attract FIIs back into the country and increase their investment portfolios
As the Indian economy strengthens with the domestic financial markets edge towards a bull run, the signs are all there, that even though the immediate future is slightly bleak, there is every reason to hope for a fantastic recovery of the Indian Rupee against the USD.
FAQs
What are the reasons for the decrease in rupee value?
Rising crude oil prices, rising import costs and the Russia-Ukraine war are some of the reasons for the fall in the rupee against the us dollar.
What happens when the rupee falls against the dollar?
If the rupee faals against the dollar the cost of raw materials will increase which will be passed on to the consumers so the cost of products will also increase.
El Salvador which is known as the Republic of El Salvador is a country that is located in Central America. The country has a population of more than 68 lakhs. El Salvador has accepted bitcoin as a legal tender and will be accepted in 90 days starting from 9 June 2021. Let’s look at how El Salvador became the first country to accept bitcoin as a legal tender.
El Salvador has become the first country in the entire world to accept Bitcoin as a legal tender after the country’s congress had approved it on 9 June 2021. The proposal was laid down by President Nayib Bukele in order to accept the cryptocurrency, this was a move that has delighted the supporters of the digital token.
In respect to the law to adopt Bitcoin, around 62 out of the 84 votes had voted in the favour of the law even though there was a concern about the potential impact on the country’s programme with the International Monetary Fund.
Reason Why El Salvador declared Bitcoin as Legal Tender
The President of the country had stated the various uses of Bitcoins. He has conveyed that through the potential held by Bitcoins the citizens of Salvador who live abroad will be able to send remittances back home. He added that Bitcoins would bring financial inclusion, tourism, innovation, investment and economic development to the country.
El Salvador is a country that relies heavily on the money that is sent back from the workers abroad. The cryptocurrency offers a quick and a cheap way to send money across borders without relying on the remittances firms. According to a data from World Bank, the remittances received in the country have made up a fifth of its GDP which is one of the highest ratios in the world.
He had stated all these shortly before the vote in Congress which is controlled by his party members. It was conveyed through a tweet and he also added that the US Dollar would also continue as a legal currency of the country. El Salvador does not have a currency of its own.
The President later had conveyed to La Geo which is a state owned geothermal electric firm to develop a plan in order to provide the Bitcoin mining facilities using the renewable energy from the volcanoes of the country.
He has stated that the idea was to build a mining hub around the geo thermal potential of the country. However, the idea is stated to be an overnight one. He also stated that El Salvador would provide citizenship to the people who show evidence that they had invested in at least 3 Bitcoins.
Acceptability of Bitcoin in El Salvador
The acceptability and the use of Bitcoins for the individuals are optional and would not bring any risks to the users. The President has conveyed that the government will guarantee convertibility to the US Dollars at the time of transaction through a trust that was created using USD 150 million at the development bank of the country, BANDESAL.
Under the law, the cryptocurrency should be accepted by the firms when they are offered as a payment for various goods and services. The Government has conveyed that the Tax can also be paid using the cryptocurrency.
The President of the country through an online conversation has conveyed that, if an individual visits McDonald’s and wants to pay through Bitcoins, then they will have to accept the Bitcoin and will not be able to tell that they won’t accept it as the Bitcoin is a legal tender of the country.
Response to the announcement of declaring Bitcoin as Legal Tender
In the capital of the country, it was found that there were mixed emotions when it came to declaring Bitcoins as a legal tender. Some of the individuals were excited about declaring it as a legal tender and the increase in the financial options and prosperity of the new currency, while the others were quite skeptical about it.
Analysts have conveyed that the move from the country would cause certain complications with the IMF, where the country has sought for more than USD 1 billion programme.
Estela Gavidia had questioned about, How he is going to accept the Bitcoins when he hasn’t seen it not even in photos and added that he doesn’t know nothing about it and understanding your currency is very important.
Conclusion
The supporters of the cryptocurrency have claimed it as a move to validate the emerging asset but also added that the regulation on Bitcoins, taxation, or the adoption in other countries is yet to be seen. However, there are no immediate signs that the other countries would follow El Salvador’s acceptance of Bitcoin.
FAQ
Is El Salvador a poor country?
El Salvador is one of the poorest countries, with low per capita income, chronic inflation, and high unemployment.
Does El Salvador have its own currency?
The official currency used in El Salvador is the US dollar.
What is El Salvador known for?
El Salvador is a country in Central America which is Known as the Land of Volcanoes, as it has frequent earthquakes and volcanic activity.
