The Hindu Business Line : Rupee depreciation

With reference to the article “importers’ demand puts rupee under pressure” (Business Line, November 21), ironically, the financial crisis that originated in the US is responsible for the appreciation of the dollar and depreciation of other currencies, including the rupee.

Traditionally, international trade is financed by not only ready cash but also the credit offered by the exporters and used by the importers under either letters of credit or bank guarantees and credit lines in foreign exchange offered by banks and, in turn, backed by similar money market lines extended between banks and bilateral credit lines given by countries as well as banks and other financial institutions.

As the financial crises, spread, the liquidity crunch affected the banks. As the demand for the dollar increased, it appreciated while other currencies depreciated.

However, the depreciation will continue till the existing short-term trade credit of $23 billion becomes payable after which the dollar will find its own equilibrium.

P. Esakki Muthu e-mail

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