Why Is Us Dollar Always Stronger Than India Rupee?

By Author: Nitin Motwani
Total Articles: 12
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The American dollar is stronger than the Indian rupee because when compared to India, the U.S. has trade advantages and is economically stronger. The higher the demand is for a currency the stronger it becomes. The dollar is always much in demand.

Like any commodity, the value of a currency depends on the dynamic forces of supply and demand. The exchange rate of a currency depends on up-to-the-second-trading in currency exchanges across the world. When a currency appreciates it indicates that it has increased in value in relation to some other currency.

The foreign exchange market has several participants - the governments, the individuals, the banks, the corporations and the brokers who buy and sell currencies all day. Whenever more people buy a currency vis-à-vis selling it, the exchange rate for that particular currency rises. The opposite is also true. When there are more sellers than buyers for a currency, its exchange rate falls.

In the not too recent past, India was experiencing large dollar-inflows due to a favourable business scenario. This caused the rupee to get stronger and its value vis-à-vis ...
... the dollar appreciated. This kind of an environment affects exporters adversely. The importers benefit when the rupee appreciates as they have to pay less for imports.

The Indian economy at that point needed to build its dollar reserves and so the exporters’ concerns took precedence. The Reserve Bank of India (RBI) had to intervene to tilt the balance a little. The RBI uses state-run banks to buy or sell dollars. This safeguards high market volatility in forex market.

A sharp depreciation or appreciation in a currency is always bad for the economy. The RBI wears the heavy mantle of protecting the dollar-rupee exchange rate and keeping inflation low. When the global financial markets collapsed, India which was having a large dollar inflow started experiencing dollar outflow. This was because the American economy needed unprecedented bailouts with an infusion of dollars.

So, you can now see the fine threads through which the dollar is linked to the Indian economy. And not just India, globally the dollar is finely threaded into the economy of several countries. Due to its stability, several countries have adopted it as their official currency. The dollar has not experienced devaluation or invalidation, ever. Globally, bank failures are dreaded by countries and a stable dollar brings peace of mind.

In a globalized economy it is much easier to do business with a stable currency. Before World-War-II, for over two hundred years the British pound was recognised as the world's reserve currency. British military might and its banking system made the Sterling Pound powerful and acceptable to most globally.

After World-War-II, the U.S. dollar claimed this status which has so far gone unchallenged. As the dominant reserve currency, the U.S. Dollar offers stability and acceptability, apart from precious anonymity which makes it a currency of choice. This is why when anyone wants to exchange dollars to rupees or vice versa, it is the best possible exchange rate that they seek.

Globally, including in India, the foreign exchange rate market is always unpredictable. It is better to optimise your currency value with real-time market rates. For the best dollar rate Delhi find a service provider who can give you up-to-the-second foreign exchange rates in India.

The author of this article is associated with Bookmyforex.Com, a pioneering website conceived with the long-term vision to use its exclusive tie-ups, large distribution network and the internet to create an organized and customer friendly foreign exchange and remittances market in India. You can visit their website for the best foreign exchange in Delhi.