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The Plain Facts

The Plain Facts
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First Published: Mon, Nov 22 2010. 01 18 AM IST
Updated: Mon, Nov 22 2010. 10 07 AM IST
In the season of currency wars, India has not intervened heavily in the foreign exchange market and has let the rupee appreciate.
This chart used by US Federal Reserve chairman Ben Bernanke in a Friday speech gives us some idea about which emerging market economies have been the least interventionist in the 12 months through September. The two parameters used by Bernanke are the appreciation in the real effective exchange rate and the increase in foreign exchange reserves as a percentage of gross domestic product.
Also See Mapping Currency Strategy (PDF)
India, Chile and Turkey have been the least interventionist. Look at how China measures up: minimal currency appreciation and huge reserves accretion. India may be an island of sanity in a sea of mercantilism, but the question is how long it can hold out. The more other emerging economies intervene to keep their currencies down and impose barriers to capital inflows, the more India will be at risk of an overvalued exchange rate and a domestic asset bubble.
It’s going to be a delicate balancing act between purity of purpose and the messy realities of a two-speed global economy.
Graphic by Ahmed Raza Khan/Mint
Write to theplainfacts@livemint.com
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First Published: Mon, Nov 22 2010. 01 18 AM IST