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Why is Thai baht stronger than the Indian rupee when India is an economically stronger nation?
Harit Dhariwal, e-mail
There are some appealing home truths about foreign exchange rate. In the long run, a currency is only as strong as its purchasing power is. Also, a stronger economy would have a stronger currency. But the ground reality is something different. The US economy has been in the doldrums, yet its currency has neither lost relevance nor weakened precipitously. This is because of the status of international referral currency enjoyed by the dollar since 1944. Similarly, China is the second largest economy, world's largest exporter and enjoys $4 trillion GDP. But it has chosen to keep its currency deliberately weak to promote exports. The point is exchange rates are hardly determined on rational or scientific basis. Demand and supply mar more rational considerations as much as government and central bank policies.
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