The Hindu Business Line : What’s in a name?

Chennai, June 30 The Reserve Bank of India figures on India’s total foreign currency assets are dollar-denominated. The ‘real’ value of this basket of currencies would remain unchanged whether the total were expressed in dollars or euros or yen. But the trouble is that this ‘real’ value and changes in it are an unknown quantity.

The accompanying figures highlight the obvious point that a change in the currency in which foreign currency assets are denominated can cause major changes in the information that the figures convey, even in the absence of any change in the underlying reality; which, as already stated, remains unknown.

For example, while India’s dollar-denominated foreign currency assets increased by 42 per cent over the past year, the country’s ‘euro-denominated’ assets increased by only 25 per cent.

One last thing. A mere ‘change of name’ does not alter only the information about the size (and conceivably the direction) of changes in foreign currency assets; it affects the interpretation of other dollar-denominated values as well.

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