In recent news the India currency, the Rupee has fallen in value for the second day in a row as investors pull over $300 million from the country this month. This is due to falling trust in the growth of the global market, especially after the U.S. Federal Reserve lowered its expectations for global growth.
The Rupee
The Rupee is the Indian currency and the "cents" are called paises. At the end of the month all cent denominations below 50 paises will cease to be legal tender. This is similar to the argument you may have heard a while ago about getting rid of pennies since they are basically worthless. I don't think this is the same as the south american nation (i can't remember at the moment) that changed its denominations every few years to mask its rampant inflation, but it is interesting nonetheless. The exchange rate for India is on the order or 45 rupees to 1 dollar, so you can imagine that 1 paise is probably just about worthless like our penny.
India was one of the first to use coins and the Rupee was based on the silver standard since the 1400s when it was introduced. This had a negative affect in the nineteenth century when the worlds larger nations were on the Gold standard and new silver deposits reduced its value. Several attempts were made to change this but only recently was it taken away from any mineral standard.
Wikipedia
Varma, Anil. "India Rupee drops on concern global economic growth will falter. <http://www.bloomberg.com/news/2011-06-23/india-rupee-drops-on-concern-global-economic-growth-will-falter.html>
It is still astounding to me that a government can just decide that it will no longer use what it had developed as legal tender. But we've seen it in Germany and Argentina.
ReplyDeleteThe information about silver being the monetary basis is very interesting and just backs up the professor's opinion on the dangers of tying a country's economy to a commodity.
I can't believe the country is just now all of a sudden not accepting their own currency. Shouldn't they have a buy back program, or a way for the people to get some money out of their Rupees
ReplyDeleteWhat will they do with the pennies floating around in the system? England revalued its system in 1971 and all of their old currency is no longer seen in circulation. It has become a market unto itself, however, and is still valuable.
ReplyDeleteIt appears as though it is public knowledge that all currency below 50 paises will no longer be legal tender. At least the population has some warning. If I had a bunch of paises, I would go turn them into Rupees.
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