Another excerpt from Quora ..amazing...!! Currency prices works like an index of prosperity in the respective nation. So if youve higher valued currency, youre more developed than lower valued currencies. However you need to note that the economics works in a way to create a balance. So if value of a currency from developing country such as India (INR) is lower than USD, that means cheaper goods and services are available there and theyll get higher demand, which will ultimately increase the prosperity of India and INR will become strong. A strong INR will attract lesser buyers since it already lost its cost advantage. Well loose export businesses. If you know about demand and supply stuff, its easier to explain this. For example prices of 1 KG. rice in USA is 100 USD, in India 100 INR, in Japan 100 Yen, then a USA and India Guy will import rice from Japan since Yen has lowest values among currencies. Demand in Japan will increase for rice, and when supply is constant and demand improves, the prices gets inflated too. Japan will start selling 1 KG. rice in 1000 Yen. You also need to keep in mind that increasing exports means people in Japan will have more money in their pockets, which will increase overall inflation in Japan. Now since prices of Rice in Japan got too much inflated, the demand of Japanese rice will decrease and people will buy it from India. The same thing will happen and now the balance will be there. Now back to your question, what will happen if USD and dollar will be at same price. First of all well loose all of our exports, since thered be many other countries to look for. Since its artificially created balance, without any actual rise in prosperity, development and demand of exports, Indian people will not have any money with them (because there was no sales), prices will inflate for no reasons and can get deflated too, to create the balance. Well have no exports since no one will buy from us, we can not import because we wont have money for that. INR prices were like 17 INR a dollar before LPG act of 1991 came into effect. That was artificially created and the INR had too low value, which was later adjusted with LPG act. (I dont know the exact history, so I might be wrong here.) But yeah lower INR rate is a good thing for us, since it creates investment opportunity for others into India. China is artifically devaluing its currency to get the cost advantage for years. USA is pressurizing China for years to raise prices of Yuan to balance things. This is actually a pretty interesting scenario. But the analysis depends on how it happens - 1) Overnight - Gandalf and Dumbledore team up and create magic such that one fine morning, 1 USD = 1 INR, instead of 1USD = 60 INR. Now here again, there are two sub-scenarios, 1 A) 1.5 INR = 1 GBP, 1 INR = 1USD = 100 JPY and so on .. (meaning INR became equivalent to USD and similar against ALL currencies) .. 1 B) 1 INR = 1 USD, 1 USD = 100 GBP, and so on ... (meaning only USD became weak, all other currency parity remained just the same) 1 B is hardly fun, means only doom for the US citizens, nothing special for the Indians. 1 A is VERY interesting. 2) Gradually – INR strengthens and USD weakens so much that eventually, 1 USD = 1 INR 1A - INR becomes equivalent to USD overnight. This means that suddenly, everyone who has 1 rupee, becomes 60 times richer as compared to anyone else in the world who did not have a rupee !! Consider the impact it will have on numbers like GDP, per-capita income etc Easily, India will become the richest nation in the world. Since the change happened overnight, the day to day life of an individual living in India wont change immediately (he would still be paying the Rs 17 min auto-fare in the auto, and Rs 500 to watch Kick in a multiplex in the evening, even though the same amount could have bought him an iPhone or a return tip to Caribbean, had he been in the US) But the music will start eventually, thanks to the globalization and an increasingly connected world .. Since most of the Indians now will be easily able to afford luxuries, life will be pretty cool in the beginning … Needless to say, we would soon be the most opulently living people in the world, with most of the first time salary takers thinking of buying a Spanish villa by the end of next month and an Australian Island for the Spouse’s birthday Nothing would be too expensive anymore and India would become a huge market for global luxury goods Since Domestic salaries would become around ~ USD5000 per month per household, many western college students who do bar-tending to finance their education come to india during summer breaks ... Dont be too surprised if u walk into a friends home and actually see this ... But the party won’t last long … Since everything international will look so cheap to Indians and everything domestically produced will be expensive, its goodbye to indigenous industries and everything will be imported eventually (Congs China !). Like every part of India will be a version of Dubai or Monaco. No foreign investor will be able to buy anything in India since everything will be so expensive (an average house would cost not INR 100,000 (1660 USD) but USD 100,000) and so on .... No foreigner will be able to visit India for tourism (they simply would not be able to afford Dharavi Tourism, and would anyways be too jealous to see slum dogs being actual millionaires, to post selfies with them on facebook, thereby making the whole effort of travel futile) Soon enough, every salaried Indian will have a comfortable lifestyle, will have Americans and Canadians working for them as domestic help etc .. BUT – 0 Manufacturing 0 exports 0 services (no more IT services exports) 0 Foreign investment 0 Infra work - domestic labour will be too expensive So .. Massive Unemployment ->>> People will move abroad for work ->>> Massive overseas Migration Only those Indians would stay in the country, who believe their savings are sufficient to help them sustain their current lifestyle, without working, for many years, and perhaps generations.. Indians who migrate will never be able to return because their earnings abroad would not be sufficient to sustain a living in India NOW GDP will tend to go to zero, with no economic activity, no production, no mining or agriculture etc **** Assuming government would not intervene and there are no socio-psychological consequences of massive unemployment**** Now, Prices will have begun falling sometime ago. The unemployment and immigration would crate a downward spiral, to the point where ultra rich Indians will find there excess wealth boring. What will they do … they go shopping around the world … Since every Indian Billionaire is worth 60 times more than before, he could practically afford to buy everything that has a market price, from the empire state building to all the football and F1 teams in the world. BUT THIS EVENT WILL TRIGGER A GLOBAL INFLATION … since most Indians will be happy to pay any price for what they want, they would drive up the prices of global commodities. (**** Assuming no government intervention anywhere. Indian population and economy is sufficiently big to cause such an event. A small country like sri-lanka would not cause such ripples****) Global Inflation ->>> Lots of unhappy people ->>> increased hatred against Indians ->>> Indians who had migrated abroad before will find it harder to sustain themselves ->>> Global central banks will have increase interest rates to curb inflation ->>> Indians unhappy everywhere In Parallel, since there is no investment in India, no manufacturing and no future growth prospects, coupled with a flood of INR overseas , caused by rich Indians with their buying spree ->>> INR will fall against other global currencies The fall will continue till the things are back in equilibrium, which will take anywhere between 15 -50 years, during which time, there will be massive unemployment and hatred, frustrations that will last for generations. IN SHORT, 1 INR = 1 USD is good news for about 5% of Indians for about 2-5 years, and its bad for everyone else, for decades { In the real world, our RBI governor would call up urgent meeting with all the big central banks in the world, and systemically devalue INR again to the 60 levels, so that sanity prevails) 1 B - USD becomes weaker against all economies While this is good news for US exports, every person in the world having wealth in USD will find their riches reduced to 1/60th of original. But in general, if your are an average non-USD citizen, it wont affect you directly. Only the millionaires having huge USD denominated assets will be complaining initially Since US is a net importer, by a distance, the countries like Germany, china, Korea, japan etc who depend massively on US markets for their manufacturing will be in trouble. Global unemployment. And a worldwide recession would follow. India would be affected in a manner consistent with other countries 2 - Gradual Strengthening of INR against USD Relatively boring scenario – just too many moving parts – in short, the day when Indian infrastructure, per capita income, political institutions, manufacturing and research, central bank interest rates and level of inflation etc. etc. become similar to the US, INR will be equal to the USD
Posted on: Sat, 04 Oct 2014 02:49:08 +0000
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