Reading the headline ‘Rupee hits a record low against dollar’, some of you would have doubtless said ‘hey, when did this IPL match take place?’
Let us face it, if there is something more parlous than the state of Indian economy then it has to be your understanding of it. But don’t worry. Nobody actually understands economy. When I say this I include economists too in the list. If they had any clue of what they were doing, economy would not be in such a poor shape all across the world.
But economics, as a subject, is interesting. The story of how currencies came about is particularly a fascinating one, provided you choose to read it from the right source. Here is a short staccato-burst saga of some world currencies and the Indian rupee:
Ancient man survived for centuries without economy and financial instruments. As currency and coins were unavailable, all businesses and exchanges had to be carried —- this is a fact —- through credit cards. Unable to collect any money from the credit card-users, banks devised the strategy that they would charge in perpetuity the succeeding generations and generations and generations and generations. This alone comes close to explaining why we are being slapped such astronomical interest rates by the credit card companies.
Anyway, the ancient man tried his best to stop the advent of economy. He had a very valid reason for that: Economy didn’t come alone. Economists were part of the deal. And economists also didn’t come solo. They were armed with statistics and jargon, which, if properly used, can cause more havoc than nuclear weapons. This is the reason why there is no ancient man surviving now.
But eventually economy arrived. But currency did not come into being, and only things that could be eaten or made into food were bartered between people. The Chinese, having eaten all that could be bartered, eventually invented the paper money around 650 CE. But currencies went to Europe as late as the 17th century with the laidback Swedes being the first Europeans to adopt it. Why did it take so much time to reach Europe? Well, even then the laws clearly stopped courier companies from handling cash.
Elsewhere in India, Muhammad bin Tughlaq, in a typical burst of insanity, tried to introduce paper money but since Gandhi wasn’t even born, they couldn’t find a photo of his to print it on the rupee note. Finally, currencies arrived in India through the tried and reliable route of hawala operators.
At the official level, for long the Indian currency was not freely traded in the money market. In the first three decades after independence, a lot many people who travelled abroad did not know that Indian currency was not convertible to the local one. Unable to book tickets for the return trip home as they had no local money, most Indians had to, willy-nilly, stay back in the country they had gone to. This is how the NRI story was born.
Meanwhile, in the 70s and early 80s, India began to open up its economy slowly. But the money market was still a regulated one. And the going rate (against the dollar) was maintained at a steady Rs. Nine per kilo.
It was around the early 90s, the money markets were relatively freed and the Indian rupee, from being tied to the apron strings of the RBI, was now, as befitting a mature and confident economy, left to fight for its own survival, still tied to the apron string of the RBI. This is basically the story of Indian liberalisation.
But even as the economy was opened up India was still branded a third world economy. The pejorative ring to the description must have hurt the cerebral custodians of Indian economy, who after thinking deep and taking a hard look at what needs to be done came up with the best possible solution to the situation: A new symbol for the rupee. The biggest plus of having a symbol for your currency is, sooner or later it will come handy to convey cuss words in print. For the record, the dollar has been so powerful so far because it is the chief ingredient when you want to say “$%$# off” in print.
Also, if you say ‘dollar’, people might mistake it for something else. But when you write ‘$’, people will surely figure out that you are typing with the ‘Caps Lock’ key on. And in 2010, Indian rupee joined this Upper Caps pantheon.
But while rupee was coming of age, dollar was facing middle-age blues. And it still does. Dollar, the greenback, the proud symbol of capitalism, was quickly losing its pride of place. People these days prefer to use —- yes, you are right —- credit cards.
Statistics reveal that US, a $16 trillion economy, has only about $400 billion in circulation in the form of actual hard currency. Americans, on an average, hold seven credit or debit cards for everybody over the age of 15. What does all this prove? Nothing much, except that the internet provides such useless statistics to anyone who is bored enough to search for them.
Now, even though the dollar is no longer the currency of primacy, the rupee is still under tremendous pressure against it. Imports are becoming costlier by the day. This will have major impact on the oil prices, which in turn will have a huge say on the prices of everyday items, which will doubtless have a bearing on the inflation rate, which will decide the fate of the GDP and the fiscal deficit, which will certainly cast a shadow on the overall economy, which will be the major issues in next year’s elections, which will most likely be held around the next IPL season, which, if it is held, should hopefully keep us engaged so that we are not worried about how the economy is doing.