The Indian currency regime and its consequences.

Abstract

While the Indian rupee is claimed to be a `market determined ex-change rate', there is a gulf between the de facto and de jure exchange rate regime. An examination of the data reveals that India has a de facto rupee-dollar pegged exchange rate. From the early 1990s on- wards, as India as reintegrated with the world economy, the implementation of this pegged exchange rate has induced increasing monetary policy distortions. The volatility of the rupee-dollar rate has sub-stantial variation which have considerable implications for economic agents in understanding currency risk and monetary policy. However these changes in course have not been preceded by announcements from RBI.Money