(Relevent for –Gs paper-3(Indian economy and issues related to planning ,mobilization of resources and growth)
- There is no collapse in therupee’s value andthe Re-serve Bankof India (RBI) is only intervening in the forex markets to rein in volatility,Union Finance Minister Nir-mala Sitharaman assured Parliament on Tuesday.
- “Indian rupee’s fluctua-tions are more versus theU.S. dollar and even there,its performance is much bet-ter than its own peers,” shesaid, during Question Hourin the Rajya Sabha.
Appreciation Vs Depreciation
- In a floating exchange rate system, market forces (based on demand and supply of a currency) determine the value of a currency.
- Currency Appreciation: It is an increase in the value of one currency in relation to another currency.
- Currencies appreciate against each other for a variety of reasons, including government policy, interest rates, trade balances and business cycles.
- Currency appreciation discourages a country’s export activityas its products and services become costlier to buy.
Depreciation Vs Devaluation:
If the value of the Indian Rupee is weakened through administrative action, it is devaluation.
While the process is different for depreciation and devaluation, there is no difference in terms of impact.
- India used to follow the administered or fixed rate of exchange until 1993, when it moved to a market-determined process or floating exchange rate.
China still adheres to the former.