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What If 1 Dollar = Rs 1 Happened? The Real World Implications of This Economic Reality

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The Indian economy has faced many challenges during the past few decades, but the one problem it has been unable to overcome is runaway inflation. Inflation is scary for any country, but it can have negative economic implications when it hits a certain level. In India, which is struggling with high inflation and double-digit growth rates, $1 equals a lot these days.

 A dollar buys you as much as an Indian rupee used to repurchase you in the 1980s. But what if that’s no longer the case? What if $1 equals ₹1? What would that mean for Indians? This article explores what could happen if the US dollar expires at $1 per dollar. We look at how this change in monetary value would affect India and how you could adapt your spending habits accordingly.

What Would Happen if $1 = ₹1 Happened?

Currently, the Indian rupee is valued at about 66% of its market value on the back of rising demand and a relatively modest rise in the Indian economy. It makes sense because if the rupee became as valuable as a real currency, demand for it would outstrip supply.

 The higher the rupee value, the more products cost in that currency, and the less the Indian economy would be able to trade abroad. The rupee could also become more expensive for Indian companies to export their products, potentially reducing the competitiveness of Indian firms.

What Would Happen if the US Dollar Expired at $1?

The answer is that it would not affect the Indian economy whatsoever. The reason is that India has vast bilateral trade and financial ties with more than 180 countries worldwide. The fact that the Indian rupee can buy less than a dollar in the US today is a result of a combination of factors, including low inflation, a strong rupee, and a high dollar. 

The rupee can’t buy more than a dollar because there are endless supply chain bottlenecks and a lack of demand in the secondary market for Indian goods. In other words, the currency isn’t strong enough to buy more goods and services against it.

How Does This Change Matter?

It is where the implications of the change in dollar value become interesting. The general sentiment in the media has been that dollar value is irrelevant because it will have no impact on the Indian economy whatsoever. It is incorrect. The reason is that when the Indian rupee starts to trade at a price lower than the dollar, it will affect demand for Indian goods and services and, therefore, the Indian economy.

 The most important aspect is that exporters of goods and services will have to think twice about how much to charge for their products. If the price of their products can’t be higher than the price of the rupee, they won’t have much of a profit from them.

Photo By :
Dmitry Demidko / Unsplash

The Real-World Impact of This Change

Let’s start with the obvious. If the US dollar continues to trade at a lower price than the Indian rupee, then many Indian goods and services will become cheaper in the United States. It will positively affect the Indian economy because a lower-priced Indian product will make its way into the American market. It will also happen that Indian exporters will have more scope to sell their products in the United States because they won’t compete against cheaper American products. 

Consumers will, in turn, be able to purchase more Indian goods and services because they will be priced lower than they would otherwise be. Beyond that, the supply chain in India and the United States will change, and that’s a big deal because it could have a cascading effect on Indian businesses.

Indian businesses that set up operations in the United States may find it more challenging to get their products to market quickly since the supply chain could become more complicated.

What Will Your Life Be Worth?

If the value of the rupee stays the same as it is today, then the question is how one values a life. Life is a finite resource, and therefore, it makes sense that we would value it according to how valuable it is to us. What would they have to pay you if you were to sell your life to the highest bidder?

This question can be applied to a lot of things in life. For example, if you were to sell your kidney to the highest bidder, you would be worth that much because you are vital to other people’s survival. If someone were to trade their kidney to the highest bidder, how much would you expect it to be worth? 

As you can see from the examples above, the value of a life is not determined by the amount of money that is exchanged but by the amount of happiness that is created. An exchange of money for life might sound like a trade that is less than ideal, but this is because we don’t account for the potential impact of a lower dollar on Indian businesses.

Which Currency Will You Use in India?

Choosing the correct currency for your trade and country is essential. Exchanging one currency for another will significantly impact your daily life. For example, if you are trading in India, you will have to decide between the Indian Rupee (₹) or the American Dollar (USD).

For example, if you work in the United States and need to purchase groceries, you will have to pay cash on the day you buy them. However, if you purchase groceries in USD and return them to the US, you can return them to the store with no change and still get your money back.

How Will You Pay Your Employees?

If you are an Indian company with US employees and want to keep their salaries in USD, you can find it very difficult to do so. It is because salaries in USD are not indexed to inflation and will go down over time since there is no way for the government to raise taxes to deal with rising costs.

It means that employees will have to accept a lower salary, and there could be a lot of resentment among those who cannot keep up with the the changing costs of living. On the other hand, if you have employees working in India and want to keep their salaries in the Indian Rupee (₹), then you have a choice. You can either pay them in cash or issue them an employee stock option (ESO) in exchange for their shares. 

An ESO is a form of equity you can give your employees, allowing them to buy shares at a set price in the future. There are many benefits of an ESO, such as the kill-the-dollars-only-for-the-present-time idea where you give employee stock options some of their spending power now, so they have more money to spend later on.

Photo By :
Alexander Mils / Unsplash

What if We Converted Every Indian Bank Account Into a Currency Like the US Dollar?

It has been a popular idea in India, and there have been movements across the country to convert every bank account into a currency like the US dollar. It makes sense because when people transfer money in dollars, they send money out of the country and into a different currency. People who want to send money to another person or business in another country will have to use a different currency. 

It will help the Indian economy because it will help it stay connected with the rest of the world. It will also help those who trade in currencies as they can avoid conversion issues and use a more familiar currency.

What Could Go Wrong?

There are a lot of unknowns with this idea. For example, how will people react when they see their money being transferred from their banks to an account with a different currency? In addition, how will this change affect the way that business is done in India since they will conduct most of the operations in one currency instead of the alternatives that would result from this? 

There are also the potential risks of default by one of the banks that would significantly disrupt the economy. There could also be a disruption in the stock market due to this, with shares of Indian companies falling as investors sell off their investments as they worry about the impact of a lower dollar on their investment returns.

India and Its Influence on the Global Economy

The Indian rupee is the world’s 8th most traded currency and is freely interchangeable with the dollar. As such, if the value of the Indian rupee increases relative to the dollar, it affects the global trade dynamics that are heavily dependent on the US dollar. 

The rupee would likely become more valuable against several currencies, notably affecting the global trade balance. If the US dollar fell against most other major currencies, this would likely have a substantial impact on the US economy. Still, it would have a much more uneven effect on the rest of the global economy.

How an Increase in the Value of the Indian Rupee May Affect India

If the Indian rupee becomes as valuable as a real currency, it will significantly affect the Indian economy. With the central bank having the ability to set the exchange rate at will and with no mandate to keep it above the Indian rupee’s value against the dollar, there is potential for the rupee to become overvalued. 

It may affect the Indian investment climate, with potentially higher premiums being charged for safer assets and fewer investments being made in risky sectors, such as the real estate sector. 

Suppose the Indian government were to intervene to bring the value of the rupee back down. In that case, this might affect the Indian investment climate, with potentially higher premiums for safer assets and fewer investments being made in risky sectors, such as the real estate sector.

A High-Value Indian Rupee Could Lead to Greater Regional Stability

If the Indian rupee were to gain as much as 50% or more in value against the dollar, it would add significant stability to the global financial system that would otherwise be brought about by volatility. It would likely have a positive impact on the Indian economy, as well as the regional and global economy as a whole.

The Rupee Would Also Likely Benefit South Asia

Many believe the Indian rupee’s most significant impact on the region would be in South Asia. With the Indian rupee currently trading at a discount of around 40% to the Pakistani rupee and 60% to the rupee in Afghanistan, there is a lot of potential for this region to benefit from the same thing that has happened in the West – a rise in the value of the Indian rupee.

If the Indian rupee rose as much as 10% against the dollar, it would mean that goods and services in that currency would cost a customer around 10% more. It may have a small but significant impact on the Indian economy, but it would have a much more significant impact on the South Asian economy.

India and Pakistan: Both Countries May See Change

One of the more intriguing scenarios that could play out is if the Indian rupee were to become as valuable as a real currency in Pakistan and Afghanistan but stay significantly lower than an actual currency in India. With the Indian rupee currently trading at around 40% to the Pakistani rupee and 60% to the rupee in Afghanistan, this scenario would benefit both regions. 

If the Indian rupee rose as much as 10% against the dollar, goods and services in that currency would cost a customer around 10% more. It may have a small but significant impact on the Indian economy, but it would have a much more significant impact on the South Asian economy.

India Becomes Rich as Fast as South Korea

If the Indian rupee became as valuable as the South Korean Won, this might significantly impact the global trading environment. With the Indian rupee trading at around 80% of its current value against the Won, the impact on the rest of the global trading environment would be very significant. 

With the Won currently trading at a discount of around 30% to the Indian rupee, the potential benefits to South Asia would be much higher. If the Indian rupee became as valuable as the South Korean Won, this might significantly impact the global trading environment. 

With the Indian rupee trading at around 80% of its current value against the Won, the impact on the rest of the global trading environment would be very significant. With the Won currently trading at a discount of around 30% to the Indian rupee, the potential benefits to South Asia would be much higher.

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engin akyurt / Unsplash

Impact on International Trade

If the Indian rupee were to become as valuable as the dollar, it would make Indian products cheaper to produce, which may significantly impact the global trade environment. The same can be said for services, as services rendered in India may become as cheap as those in the US. 

Suppose both the Indian and American economies were to see a significant boost from this. In that case, it might be enough to overcome the trade deficit that the Indian country has been experiencing.

Impact on Globalisation

Another potential impact of increasing the value of the Indian rupee would be globalization. If the Indian rupee were to become as valuable as the British pound or the Japanese yen, it might affect the whole distribution of wealth in these countries and the global economy.

Change in Livelihood for the Poor

One of the more polarising topics that are likely to come up when discussing the impact of an increase in the value of the Indian rupee is the impact that would have on the poor. The basic idea is that if the price of things were to rise, people would buy more of what they need, and as a result, there would be an increase in the standard of living for the poor. 

There is some merit to this, but it is debatable what impact it may have. Indeed, if the Indian rupee rose, it might impact the poor. From this standpoint, things may become cheaper, and they may be able to buy a refrigerator or two, which would otherwise be out of their reach.

Changes In Living atmosphere

Several changes might take place in the Indian way of life if the value of the Indian rupee were to increase. It may change the way people live because they would be able to afford more things. 

Also, people will likely live healthier lives with a higher standard of living. It is because they would be able to afford better healthcare and food. It is also possible that there will be more leisure time for people to enjoy themselves.

Changes In Employment Opportunities

The value of the Indian rupee may impact employment opportunities in India. For example, if there were a sudden rise in the rupee value and this increased competitiveness between companies in India, it could lead to lay-offs and even loss of jobs for some workers.

 However, this should not happen as long as India has a balance between exports and imports. If we maintained this balance, then it would mean that there was no deficit or surplus in foreign exchange reserves needed by India to maintain its currency at its current rate; therefore, no changes would take place in terms of employment prospects within India.

Benefits 

1. $1 would become the new benchmark.

2. No more devaluation of the rupee.

3. More economic cash would lead to higher consumption and exports.

4. More jobs in India as businesses will have to hire people and pay them more, which will lead to more jobs being created due to this process.

5. The price of imported goods would rise, which would lead to an increase in cash for the government. It will mean that the government could use this money to help those in need more efficiently and effectively.

6. The increase in cash would mean that people could go out and spend on other things, which will lead to higher demand for goods and services.

7. Remember how I said that if the rupee is devalued, there would be a rise in the price of imported goods? It would mean that this rise in the price of imported goods would increase exports.

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Celyn Kang/ Unsplash

Demerits 

1. The price of imported goods would rise.

2. This will mean that the government will have less cash in the economy, which will lead to higher taxes for everyone.

3. The increase in taxes will lead to a reduction in the amount of cash that people have in their pockets, which means that they would need to spend this money on other things such as food and other necessities, which could lead to a rise in poverty.

4. The rise in poverty could lead to more crime, damaging the economy as a whole.

5. The increase in poverty could lead to more people being forced to borrow money from the banks, which will mean higher interest rates, which will mean that people would need to borrow more money to buy food and other necessities.

6. The increase in interest rates will mean that people will have a more challenging time repaying their loans, so they would have less money left over for other things like food and clothing, which could lead to poverty increasing even further.

7. If the economy grows faster than expected due to this policy change, it could create inflation for those who cannot afford food or necessities.

8. If the government cannot repay its debt, it could lead to a default on its loans and, therefore, lower confidence among investors and lenders (which could lead to a further increase in poverty).

Conclusion

The Indian rupee can freely trade at $1 per dollar, which is valued against the American dollar and cannot trade at a higher price. The impact of the United States dollar expiration at $1 per dollar on the Indian economy is minimal. This article has explored what would happen if the United States dollar expired at $1 per dollar and how this would affect the Indian economy.

If you liked this article, check out: “Demonstration Of Gender Taboo In Today’s Society.”

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