Demystifying StocksEvolution of the Rupee

• From being amongst the first few issuers of coins as currency, from as early as 6th century BC, the rupee sure has come a long way!

• The word rupee (or rupya in Sanskrit) basically means a coin, essentially in silver, that is shaped, stamped & impressed upon. This soon gave way to notes and paper currency as we know today.

Image source: RBI

How it all began

• Pre Independence, the Indian Rupee was the legal tender in several British Colonies especially in East Africa and Asia. It continued as the main mode of currency in Oman, Qatar and UAE till the 1960’s before being replaced.

• Today, the rupee still rules the roost in Southall in UK and Springdale in Canada, known for their sizeable Indian populace.

• The correlation of the Indian Rupee to the currencies of developing economies has always been extremely rocky and the start of this can be attributed to the era post the Prussian War or Circa 1870-71.

• The entire global economy then moved to what was known as a Gold Standard – i.e. the standard exchange currencies were fixed against reserves of gold.

• This led to a gap between the countries that used silver as a medium for exchange given that they had no access to gold like Japan or given that they were part of colonies like India and prohibited from converting the standard of exchange to gold.

• India’s currency has always been in silver and this made trading with developed economies difficult as most of its trade was either with Great Britain or countries that traded with Gold.

• Silver increasingly got demonetized as newer reserves were being discovered.

• The impact of such a huge rift was profound as the fall of the rupee against the Pound was directly proportionate to the fall in the prices of silver.

• Post Independence, the economic crisis of 1966 and 1991 collectively attributed to the weakening of the rupee further in global markets.

• The trade deficits of 1950, resultant inflation and the stopping of foreign aid, the war of 1965 and drought devalued the rupee further.

• Subsequent liberalization helped stem the flow till 1991, when India started facing its next wave of Balance of Payment Issues from 1985 – 1990.

• With imports restricted and high deficit, the rupee was devalued yet again especially by 1999.

Rupee after independence

• Between 2000 – 2007, the rupee stabilized quite a bit and reached levels of 39 (in 2007) as versus the USD.

• With high remittances, sustained foreign investment inflows and the development of exports in the sectors of outsourcing and technology, the rupee led a strong battle against the USD.

• However, the subsequent global economic recession since 2008 has led to it steadily losing value ever since.

• Indian Rupee could continue to remain very volatile in the coming months.

• The sudden exigency from the government of India to unleash a wave of reforms augurs well for the Rupee.

The road ahead

• READ MORE

Twitter Website Facebook

Thank You

• Registered office: Kotak Securities Limited, 1st Floor, Bakhtawar, 229, Nariman Point, Mumbai - 400021. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, OTC INB 200808136, MCXSX INE 260808130.

• Disclaimer: Investments in securities are subject to market risks, please read the SEBI prescribed Combined RDD prior to investing.

• Correspondence Address: Infinity IT Park, Bldg. No 21, Opp Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Tel no: 66056825.