I just came across this article where India’s forex reserve has risen to all time high.
When the whole world is a tensed zone, war happening and big powers going against each other.
Dollar can weaken us, rather than making us strong.
Imagine US getting into war now!!
USD might go up and India might bleed that time exports might be significantly be hit.
How better we could have gone? or what else as a country should shield ourselves better with?
It might be of interest to check the USD reserves of other “big powers”.
As long as nations continue to hold USD reserves,
and wish to trade with other nations in USD,
(irrespective of their relations with the US)
USD will continue to be valued as a reserve currency.
Can you elaborate a bit on how you imagine the former leads to the latter?
AFAIU, that’s not how a reserve currency works.
Due to the use of USD as the reserve currency
(though has reduced in the recent past, compared to historically how dominant/widely-accepted it has been)
countries will need USD irrespective of whether they trade with the US or not.
our ministers are pocketing money - their families, children, fds and shell companies are all based in the US and europe. that’s all there is to it = it’s not complicated. most of us’s income (outside) comes from software and chips. do we really think it’s hard for us to create an insta or whatsapp especially when we already have upi running 24-7 and other homegrown apps serving 1.6 billion people? the chinese have their own versions an why don’t we? It was never about difficulty it’s (mainly) corruption in all layers. another issue thats often overlooked is the language barrier. learning russian, chinese, or japanese isnt easy let alone achieving fluency. If we opt out of the western sphere where else could we even go? India will always prioritize saving dollars - at least for the rest of our lifetime.
If a country goes into war, IMO its currency would actually depreciate (not go up), because it would incur unplanned expenses, which would increase its spending, widening its deficits and weakening its economy.
In such a situation, holding a depreciating currency, would hurt, as we would have spent more to buy it, than its current worth.
Holding a currency as reserve makes sense because we transact more in that currency and we anticipate it to appreciate in value because of the demand for that currency.
If, USD appreciates, having an appreciating currency in reserve would only benefit us, as we could sell them to fund our imports and stabilize our currency (INR). Moreover exporters will actually benefit from it, it is the importers that will feel the pinch if USD goes up.
For a country (India) which is a net importer, we pay more USD than we receive, so holding USD as reserve helps in softening the fall of INR, and brings stability.
IMO, currency appreciation/depreciation is mostly related to its demand and supply.
When everyone pays in USD, the demand for USD increases driving up its value, to curb this, we need to increase the supply of USD, that is where holding such reserves help, now RBI would sell USD, increasing USDs supply and removing some INR from circulation, this to some extent prevents INR from depreciating steeply.
We just want rupee to depreciate at a slower pace by holding more foreign currency reserves. A stable currency brings stability to our economy.
