The devaluation of 1966 turned the spotlight on the gold clause. The Reserve Bank was not in the picture when these agreements were made, and when little thought appears to have been given to the significance of this clause. Under the so-called gold clause in many of these agreements, the exchange value of the Rupee was fixed in terms of gold, thus effectively protecting holders of Rupee governed by such agreements from devaluation. In early 1960s, the Rupee was the unit of account in India’s payment agreements with eastern Europe. But this, as per the RBI, “makes the simultaneous pursuit of exchange rate stability and a domestically oriented monetary policy more challenging, unless supported by large and deep domestic financial markets that could effectively absorb external shocks.” Lessons from History Internationalisation of Rupee can lower transaction costs of cross-border trade and investment operations by mitigating exchange rate risk. The dollar has been the world’s principal reserve currency since the end of World War II and is the most widely used currency for international trade. Also balancing the strengthening or weakening of a currency means fixing of rates, impacting exports and imports. Current global dynamics of trade demand availability of free currency, which is acceptable to both parties before such transactions are executed. The Rupee trade has been a point of discussion for over a decade now, but it never took off largely due to various geopolitical and economic constraints. One of the best ways to counter this trade deficit is by introducing Rupee trade for major imports. "Going ahead Rupee can be seen in the range of 79.50 to 80.25," said Jateen Trivedi, VP Research Analyst at LKP Securities.India operates a huge trade deficit in excess of $150 billion. "The first half witnessed Dollar strength and the Rupee weakness continued but in the second half due to strong correction in crude oil prices, the rupee appreciated from the lows of 79.9 to 79.75. The range could be 79.50 and 80.10 on spot." "Over the near term, we expect a range-bound price action in USDINR. Foreign institutional investors were net buyers in the capital market on Tuesday as they bought shares worth Rs 1,144.53 crore, as per exchange data.Ĭorporate inflows and suspected intervention from the RBI kept the rupee's fall capped but at the same time, weakness in Chinese currency did not allow the rupee to appreciate, said Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities Ltd. On the domestic equity market front, the BSE Sensex ended 48.99 points or 0.08 per cent lower at 59,196.99, while the broader NSE Nifty declined 10.20 points or 0.06 per cent to 17,655.60. Brent crude futures, the global oil benchmark, fell by 3.05 per cent to USD 92.82 per barrel. Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.10 per cent higher at 109.64. Better-than-expected data could extend gains for the greenback. "Focus will be on the services PMI number that will be released from the US. We expect the USD-INR (Spot) to trade sideways and quote in the range of 79.40 and 80.05," Somaiya said. Somaiya added that the dollar rose to a fresh 20-year high against its major crosses. "Rupee traded in a narrow range and volatility was low as most market participants were on the sidelines following the US market holiday," said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. The domestic unit finally settled at 79.82, down 4 paise over its previous close of 79.78. At the interbank foreign exchange market, the domestic currency opened at 79.80 per dollar. It hovered in a range of 79.77 to 79.91 during the session. However, fresh foreign fund inflows into capital markets and a sharp correction in crude oil prices restricted the rupee's decline, forex traders said. The rupee depreciated 4 paise to close at 79.82 against the US dollar on Tuesday as a stronger US dollar against key rivals and a lacklustre trend in domestic equities weighed on sentiment.
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