Why Is the INR Falling Against the US Dollar, and How Does It Affect You? | Akshat Shrivastava

TL;DR

The Indian rupee is falling against the US dollar because demand for INR is weaker relative to its supply and global demand for dollars. Its decline reached roughly 6%, versus the usual 3–3.5% per year, while India’s net-import position, the dollar’s 60–65% share of world trade, crisis-driven capital flows, and deeper US equity markets create structural pressure. Read on to understand these forces and the speaker’s long-term expectation for INR.

Transcript

Hey guys, so on this video I'm going to cover three things. Number one, why is it that INR or Indian rupee is falling aggressively? Now, usually in the past it used to fall by 3 3 and a2% per year but this year the fall of INR has been roughly 6%. Now this is very steep fall. Why is it that the case? Number two point, what impact is this going to h... Read More

Key Insights

• The rupee’s reported annual decline was roughly 6%, compared with a usual historical fall of about 3–3.5% per year. The unusually steep movement motivates an examination of structural currency demand rather than political arguments or short-term market commentary.
• A currency’s market value is determined by the interaction of its supply and demand. If the supply of rupees increases much faster than demand, the supply curve shifts outward and the rupee’s value falls, while stronger demand relative to supply supports its price.
• Rupee depreciation is a relative change against another currency, particularly the US dollar in the transcript. Asking why the rupee is falling therefore requires examining why demand is moving away from rupees or toward dollars, rather than judging either currency independently.
• The US dollar gains demand during international crises because foreign investors may withdraw capital from emerging markets and return their money to the United States. The Russia-Ukraine crisis is presented as an example of uncertainty that can make dollar assets appear preferable to emerging-market exposure.
• The US dollar accounts for roughly 60–65% of world trade according to the transcript. This dominance creates a practical use case because countries can accept dollars from one trading partner and then spend those dollars in transactions with other countries.
• India’s net-import position weakens the international usefulness of the rupee. A trading partner receiving rupees may be unable to spend the full amount on Indian goods, so it can prefer dollars that are accepted more broadly for purchases such as Russian oil.
• The US equity market gives foreign holders another way to use accumulated dollars. Exporters or governments can invest trade proceeds in companies such as Google, Amazon, or Meta, while the US equity market is described as roughly 12–13 times the size of India’s market.
• Demonetization is presented as a blow to confidence in Indian government debt because currency notes represent a government promise to pay the bearer. The transcript argues that banning a government-issued note created uncertainty and made Indian debt less attractive, at least in the short term.

Questions & Answers

Q: Why is the Indian rupee falling against the US dollar?

The rupee is falling because its supply is growing relative to demand while global demand for US dollars remains strong. The transcript links this imbalance to India’s net-import position, the dollar’s dominance in world trade, crisis-driven capital movements, the depth of US equity markets, and weaker confidence in Indian debt after demonetization.

Q: How quickly is the INR falling?

The transcript says the INR historically fell by roughly 3–3.5% per year. Its decline reached about 6% in the year discussed, which the speaker describes as unusually steep.

Q: How do supply and demand determine the rupee’s value?

A currency’s market value is set where its supply and demand intersect. When the supply of INR rises much faster than demand, the supply curve shifts outward and the rupee’s price falls; stronger demand relative to supply supports its value.

Q: Why does the US dollar gain value during global crises?

During crises such as the Russia-Ukraine conflict, foreign investors may withdraw money from emerging economies. They can sell local-currency investments, convert the proceeds into US dollars, and return the capital to the United States, increasing demand for dollars relative to INR.

Q: How does India’s net-import position weaken demand for INR?

As a net importer, India can pay trading partners more rupees than they can use to purchase Indian goods. Those partners may prefer US dollars because dollars can be spent more broadly in transactions with other countries, including purchases such as Russian oil.

Q: Why is the US dollar widely used in international trade?

The transcript estimates that roughly 60–65% of world trade occurs in US dollars. A country can accept dollars from one trading partner and use them in a separate transaction with another, creating an international use case that supports continuing demand.

Q: How does the US equity market support demand for dollars?

Dollar holders can invest their trade proceeds in US-listed companies such as Google, Amazon, or Meta. The transcript describes the US equity market as roughly 12–13 times the size of India’s market, giving foreign holders another substantial use for dollars.

Q: Will one US dollar reach 100 Indian rupees?

The speaker expects one US dollar eventually to reach 100 rupees, mainly because of the trade structure and continuing pressure on rupee demand. No date, probability, or forecasting model is provided, so this is an expectation rather than a timed prediction.

Summary & Key Takeaways

• Currency prices reflect relative supply and demand rather than the isolated strength of one country. The rupee can lose value when its supply grows faster than demand, or when demand for US dollars increases. Because fiat currencies are compared against one another, rupee depreciation must be discussed relative to another currency.

• The US dollar benefits from several international use cases. It reportedly handles roughly 60–65% of world trade, serves as a destination during global crises, and provides access to a large equity market. These features give exporters, governments, and investors practical reasons to hold dollars after completing international transactions.

• India’s net-import position creates persistent demand for foreign currency because trading partners may receive more rupees than they can spend on Indian goods. The transcript also argues that India’s smaller, domestically oriented equity market and damaged confidence in government debt reduce foreign demand for rupee-denominated assets, contributing to structural depreciation pressure.