History of Indian Currency
The Initial Years
In the initial few years (1948 to 1966), India adopted the policy of fixed rate. But the ensuing years saw India in war with two great powers; China in the year 1962 and with Pakistan in the year 1965. Faced with a huge deficit, the Indian government decided to devalue the currency to 7.57 against the dollar. In the next few years, the journey of the Indian rupee was quite volatile and it was pegged against the dollar for 8.39 and 12 in 1975 and 1985 respectively.
Post the year 1991
In 1991, India faced serious payment crisis, forcing the government to devalue the currency again. There was high inflation, low growth and the foreign reserves were not enough to meet the demands of the import policy. Two years later, there was change in market situations and the currency was allowed to flow with the market. The exchange rate between the dollar and the Indian rupee was determined by the market itself. There were also provisions of intervention from the central bank, in case of extremely volatile situation.
The early – mid 2000’s
The period between 2003 and 2007 saw a steady growth of the Indian rupee. The value stopped declining and the exchange rate was stabilized between 40 and 44. In fact, in 2007, it reached its maximum ever high of INR 39.
While this was in way good news, the appreciating rupee started creating a financial burden for BPO and IT firms and major exporters incurred heavy losses. The trend, however, faced a major reversal in 2008. Ever since, the Indian currency has seen a steady depreciation. In fact, in early 2013, the value of rupee started decreasing sharply. There were several measures by the government to stop this continued depreciation.
The future ahead
Some experts, however, have a different take on the currency situation.
According to them, the Rupee has not depreciated; rather the value of US dollar has appreciated over the years as it was expected that the US might increase the interest rate.
Good news for borrowers as the Reserve Bank of India (RBI), in its bi-monthly monetary policy held on February 7 has reduced the key policy rates by 25 basis points (bps). (One basis point is equal to one hundredth part of percentage.)
