Indian Rupee Crisis Linked to International Currency Performance
As one nation changes its fiscal policies, the effects can ripple throughout the international community. Recently, the Indian Rupee has fallen to 72.91% of the value of the US dollar. This 12% drop since the beginning of the year makes the Rupee the weakest currency in Asia. This drop has been attributed to Trump’s ‘declaration of trade war’ which has created a major trade deficit of $17bn. According to Mohan Guruswarmy, once an economic adviser to the Indian government, the greater demand for the US dollar caused by Trump’s policies has had a negative impact on India’s economy. In particular, the rise in prices of US exports such as petrol and diesel poses substantial risk to the economic future of India. Additional pressure on the rupee has stemmed from the foreign sales of bonds and stocks resulting from the currency’s relative undesirability.
The network formed by international economies exemplifies many of the concepts that we have learned thus far in class. Because so many nations engage in trade with their neighbors, the clustering coefficient of the United States is guaranteed to be large. Thus, if India is effected by the sudden rise in demand for the US dollar, one can predict that other nations will suffer a similar fate. For example, Argentina and Turkey have also experienced a devaluation in their respective currencies against the US dollar. The fact that these countries have a larger external debt than India puts their currencies at even greater risk. According to Guruswarmy, inflation in these nations has increased over the past months. Moreover, high embeddedness of the network ensures that a conflict between two major nations will cause turmoil for the entire world. For example, the increasingly tense relations between the United States and China (along with the threat of future punitive measures by Trump) have hurt to confidence of international investors. This has been another contributing factor to India’s economic woes. Crises occurring elsewhere in the world, such as elections in Brazil, and deteriorating institutional standards in South Africa have also wreaked havoc on non-US economic welfare. This shows that the international economic network is essentially a single, highly interconnected component.
Source: https://www.aljazeera.com/news/2018/09/indian-rupee-crisis-worst-180914091306842.html