Globalised dollar, dollarised world
The rupee has been on free fall for 18 months now. From Rs 45 to a dollar in January 2012 to over Rs 60 now — 33 per cent fall. The cause is India's current account deficits for a decade. Economic theory says that borrowing abroad to fund current account deficit and servicing the debt depreciates currencies, causing capital flight. The theory evidently works on the rupee. But, shockingly, it works on the dollar the other way round. Recall the debate in US in 2005 on the issue of current account deficit and dollar value.
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