#forex
1. In the post independence period, India’s exchange rate policy has seen a shift from a par value system to a basket-peg and further to a managed float exchange rate system.
## 1930s
1. On 28 [April 1925](https://www.bankofengland.co.uk/events/2025/june/britains-return-to-the-gold-standard-in-1925-revisited), UK adopted gold standard and pegged pound sterling at £3 17s 10.5 d. The US dollar at that time was fixed to gold at rate of $20.67/ounce. So the par exchange rate was $4.867 per pound.
2. The Rupee's exchange rate was fixed at 1 shilling and six pence (£ 0.075) for a rupee.
3. On September 21, 1931, the UK left the gold standard during the Great Depression. The gold standard fell apart and floating rate regimes briefly emerged but it came at a heavy price. As the pound was allowed to float, its value dropped significantly against the dollar.
4. At this time, rupee's value was fixed to sterling. This decreased rupee's value in terms of gold, or gold's price increased in terms of rupee.
5. But the markets were volatile and disorderly in the extreme and were shut down for extended periods.
6. Reserve Bank of India Act,1934 was framed in the midst of this disarray and the preamble said ” …._And whereas in the present disorganisation of the monetary systems of the world it is not possible to determine what will be suitable as a permanent basis for the Indian monetary system…._”
7. In 1939, during World War II (1939–45), exchange control was introduced in India under powers granted by the Defence of India Act, 1939.
1. They were part of the British Government’s war effort to direct scarce foreign exchange towards nationally important purposes.
2. These controls were temporary executive orders (called administrative fiats) issued under wartime powers, not that of a law passed by Parliament.
8. When peace returned after World War II (1939-45), it gave birth to the fixed but adjustable exchange rate system under the Bretton Woods framework.
## 1940s
1. Under the Bretton Woods system, 44 countries in July 1944, including India, agreed to peg their currencies to the US dollar, which was itself pegged to the price of gold. This effectively made the US dollar the world’s reserve currency.
2. U.S. dollar was pegged to gold at a rate of $35 per ounce.
3. The sterling pound was briefly fixed at [$4.03 per £1](https://commonslibrary.parliament.uk/pound-in-your-pocket-devaluation-50-years-on/).
4. As Rupee was still pegged to pound sterling, and the exchange rate was a shilling and six pence for a rupee. Re 1 = 1 s, 6 d
5. With the above values, 1 Re was equal to 0.30 USD or 1 USD ≈ ₹3.33 and thus rupee’s external par value was 4.15 grains of fine gold. As 1 USD = 1/35 ounce of gold and 1 ounce = 480 grains (troy system).
6. Indirectly, every member country declared a par value in terms of gold.
7. Since the sterling-dollar exchange rate was kept stable by the US monetary authority, the exchange rates of rupee in terms of gold as well as the dollar and other currencies were indirectly kept stable.
8. The RBI maintained the par value of the rupee in terms of gold within the permitted margin of ±1% using pound sterling as the intervention currency. .
9. On 27 December 1945, India became a founder Member of IMF as it was one of the signatories to sign the Articles of Agreement of IMF.
10. In 1947, after independence, India replaced those temporary forex exchange controls put under the the Defence of India Act, 1939 with a permanent legal framework called the Foreign Exchange Regulation Act (FERA), 1947).
11. Rupee was still pegged to pound sterling, and the exchange rate was a shilling and six pence for a rupee. Re 1 = 1 s, 6 d
12. After Independence India followed a fixed exchange rate regime and the rupee was pegged to the pound sterling. Its dollar value was determined on the basis of the cross-rates of the dollar and pound sterling.
13. It is instructive to note that the 1939 order (under the Defence (Finance) Regulations, 1939) and the 1947 legislation (UK Exchange Control Act) were put in place in the United Kingdom as well. *In 1979, Margaret Thatcher, the Prime Minister (1979-90) of the United Kingdom removed all exchange controls overnight.*
14. On 19 September, 1949, Rupee devalued by 30.5 % as a defensive measure consequent to the devaluation of the pound sterling from $4.04 per pound, which was the initial rate of pound as part of Bretton Woods system, to $2.80 on 18 September 1949, and that of nearly all sterling area members, of most European countries, and of many other countries.
15. Thus 1$ was equal to ₹4.76 *and the par value of rupee in terms of gold also fell to 2.88 grains of fine gold.*
16. A structural trade deficit with the dollar area, a minor recession in the United States in the second quarter of 1949, and speculation against the pound were the key reasons for devaluation by UK. [^1].
17. The seeds for a rigid exchange control were sown in the fifties.
## 1950s
1. The Indian rupee was regarded as an official currency/legal tender in a large part of the Commonwealth, particularly in the Gulf and the Africa's, including Kuwait, Bahrain, Qatar, the Trucial States (United Arab Emirates (UAE) since 1971) and Malaysia in previous times, during the 1950’s and 1960’s.
2. The Gulf rupee, also known as the Persian Gulf rupee, was introduced by the Government of India as a replacement for the Indian rupee for circulation exclusively outside the country with the Reserve Bank of India [Amendment] Act, May 1, 1959.
3. This creation of a separate currency was an attempt to reduce the strain put on India’s foreign exchange reserves.
4. Till 1950s (1958), only foreign banks were allowed to undertake foreign exchange transactions.
5. With the gradual entry of Indian banks, the [[Forex Markets#FEDAI|FEDAI]] was formed in 1956.
## 1960s
1. During the second five year plan (1956-61), the emphasis of central planning shifted to heavy industries and there was an unintended neglect of agriculture.
2. This and three wars in a span of a decade created an acute shortage of foreign exchange reserves.
3. It was painful because India needed foreign exchange to import basic food grains. The critical shortage of foreign exchange reserves forced us to resort to the US PL 480 for meeting the food requirement of the country.
4. In this background, conserving foreign exchange was considered a national priority and using this precious resource for mundane purposes was blasphemous.
5. During the acute foreign exchange crisis, the capital accounts were opened up slightly for the expatriates and non-resident Indians by way of incentivized accounts, limited access to the secondary market in equities, etc.
6. ==On June 6, 1966, the Indira Gandhi government devalued the rupee by massive 57.4%, that is from Rs 4.76 to Rs 7.50 to a dollar (that is devalued its par gold value by 36.5%). The forex markets were shut down for two days so that banks and firms could recalculate the impact.== 1£ now was equal to Rs 21.
1. Although the rupee was officially pegged to sterling, the fixed sterling–dollar parity meant the rupee–dollar rate remained fixed at ₹4.76 per USD despite increased trade deficits until the 1966 devaluation.
2. India was also dependent on foreign aid, most of which came from US, to finance the trade gap and maintain a pegged rate.
3. But wars with China (1962) and Pakistan (1965) and the drought in 1965-1966 lead to increase budget deficits and inflation, trade gaps. These events almost depleted the reserves. To continue the aid flow, *IMF and the World Bank had sought reforms including devaluation of rupee*.
7. After this, those countries still using Rupee like Oman, Qatar and UAE replaced the Gulf rupee with their own currencies. Kuwait and Bahrain had already done so earlier in 1961 and 1965, respectively.
8. The devaluation of the rupee in September 1966 in terms of gold resulted in the reduction of the par value of rupee in terms of gold to 1.83 grains of fine gold.
9. Malaysia adopted Malaysian ringgit (MYR) in 1967.
10. Since 1966, the exchange rate of the rupee remained constant till 1971
11. On 18 November, 1967, UK devalued pound from by 14% from $2.80 to $2.40 per pound. India did not devalue against US dollar and so pound fell by 14.3% against rupee, that is from Rs 21/£ to Rs 18/£.
## 1970s
1. Till 1971, India followed the par value system of the exchange rate whereby the rupee’s external par value was fixed against gold.
2. On August 15, 1971, President Richard Nixon suspended the convertibility of the US dollar to gold, effectively ending the Bretton Woods system. In other words he no longer allowed other central banks to exchange US dollars for the U.S. treasury's gold.
1. The currency market went into turmoil and a floating rate regime came into existence.
2. But this event also led to the evolution of the current modern foreign exchange market
3. India tried to stabilise the rupee by briefly pegging directly to the US dollar between 17 August 1971 to 20 December 1971.
4. After the breakdown of the Bretton Woods System in 1971, India re-evaluated its exchange rate system, and the rupee was linked with pound sterling.
5. 18 December 1971 - [The Smithsonian Agreement](https://www.federalreservehistory.org/essays/smithsonian-agreement)
1. The dollar was officially devalued as a result of Nixon’s suspension of gold convertibility, by 7.89%, with the official gold price rising from $35 to $38 per ounce. This meant gold became more expensive in dollar terms, so the dollar was worth less gold.
2. The UK govt. did not change the par value of sterling in terms of gold, and thus it remained at £1 = 2.48828 grams of fine gold under the Bretton Woods system
1. Since the dollar was devalued, it meant that sterling was to appreciate against the dollar by 8.57%.
2. However, the sterling–dollar exchange rate itself was not changed immediately.
3. Sterling was eventually devalued later on 8 May 1972, but that was unrelated to the Smithsonian Agreement.
6. 20 December 1971 - To maintain India's trade advantage after dollar's devaluation, Rupee was pegged to the British pound again.
7. Since sterling’s parity against the dollar remained unchanged until 8 May 1972, the rupee also stayed stable against the dollar after the Smithsonian Agreement.
8. 23 June, 1972 - The pound sterling was floated in [June 1972](https://www.elibrary.imf.org/display/book/9781451922684/ch003.xml) due to heavy capital outflows, with the UK authorities deciding to let the rate float.
9. However, the acute shortage of foreign exchange during the 1960s-worsened by food shortages, wars, and other economic challenges prompted the government to adopt a more stringent foreign exchange control regime.
10. The Foreign Exchange Regulation Act (FERA), 1973 was enacted on September 19, 1973 and it came into force on January 1, 1974. It is also necessary to understand the traumas of those days to appreciate how a framework wrought by FERA, 1973 could come into being.
11. The policy regime comprised rules to grudgingly allocate scarce foreign exchange to various demands. Import control and promotion of import substitution provided complimentary policy instruments.
12. COFEPOSA (Conservation of Foreign Exchange and Prevention of Smuggling Activities Act) was also enacted in 1974.
13. Beginning mid-seventies, that is soon after the enactment of FERA, 1973 but not necessarily because of it, the situation relating to the external sector started improving primarily because of increasing inward remittances from Indian diaspora and impact of green revolution (seed-water-fertilizer technology in agriculture) of 1960s.
1. Green revolution helped to reduce food import bill by achieving self-sufficiency in some crops.
14. Both put together had eased RBI's external sector management.
15. *Between 20 December 1971 to 18 September 1975, the Rupee remained pegged to pound sterling*
16. *From 19 September 1975 till March 1, 1993 (Monday), Rupee was delinked from the pound and remained pegged to a basket of currencies.*
1. With the decline in the share of Britain in India’s trade, increased diversification of India’s international transactions together with the [[RBI_RBSCC_201711_RBI's Functions and Working_2017.pdf#page=127&selection=42,33,42,78|weaknesses]] of pegging to a single currency, and to ensure stability of the exchange rate, the Indian Rupee was de-linked from the Pound Sterling on 18 September 1975, and was pegged to a basket of currencies from 19 September till 1991, and the basket was changed periodically.
17. .The Jamaica Agreement (1976), which amended the IMF Articles of Agreement, formally recognized floating exchange rates as a legitimate system.
1. The article IV of the IMF’s Articles of Agreement was amended in 1976 to allow countries to adopt any exchange rate regime.
18. The exchange rate subsequently came to be determined with reference to the daily exchange rate movements of an undisclosed basket of currencies of India’s major trading partners.
19. The two rates-Buy and Sell rates-were announced daily to authorised (forex) dealers
20. The currencies included in the basket as well as their relative weights were kept confidential by the Reserve Bank to discourage speculation. But still it was aligned to ensure that REER does not increase.
21. 1978 - RBI allowed intra-day trading in foreign exchange by domestic banks.
22. India also tried to boost exports with help of suggestions of [[RBI_Report_197801_Committee on Import Export Policies and Procedures_Commerce Secretary P. C. Alexander.pdf|Committee on Import Export Policies and Procedures (1978)]], led by Commerce Secretary P. C. Alexander.
23. There was in the ’80s an attempt to raise exports and so on. Therefore, the [Alexander Committee report](https://www.google.com/books/edition/Report_of_the_Committee_on_Import_Export/0Bh4YhgTh9gC?hl=en&gbpv=0) and so on pointed in the direction of what we should do in order to raise exports.
24. *Though the Breton Woods arrangement broke down in the early 1970’s, India continued with a variant of fixed-exchange rate regime for two more decades.*
25. *In October 1979, Margaret Thatcher, the Prime Minister (1979-90) of the United Kingdom removed all exchange controls overnight.*
26. *Interesting facts:*
1. The larger build up of official gold stocks was undertaken by Germany and Italy between 1955 and 1960 while the build up by France was between 1960 and 1965.
2. All these three countries benefited greatly when the fixed peg of US$ 35 per ounce was discontinued (*Michael D. Bordo and Anna J. Schwartz “The Changing Relationship Between Gold and Money Supply”, World Gold Council Research Study No. 4)*.
3. Had developing countries responded to General de Gaulle’s call they would have been better off today!
## 1980s
1. Through the 1980’s, there was progressive and incremental liberalisation in cross border transactions, albeit within the same paradigm.
2. ==But two things were missing:==
1. First, the liberalisation in exchange control regime was not accompanied by any significant changes in other economic policies.
2. Second, although the Bretton-Woods regime broke down in early 1970’s and many currencies started floating, the rupee continued to be in a pegged exchange-rate system, first to pound sterling and then to a basket of currencies.
3. Thus, the foreign exchange crisis once again surfaced in early nineties
4. Banks began to start quoting two-way prices against the Rupee as well as in other currencies. As trading volumes increased, the ‘Guidelines for Internal Control over Foreign Exchange Business’ were framed in 1981.
5. The foreign exchange market was still highly regulated with several restrictions on external transactions, entry barriers and transactions costs.
6. Foreign exchange transactions were controlled through the Foreign Exchange Regulations Act (FERA). These restrictions resulted in an extremely efficient unofficial parallel (hawala) market for foreign exchange.
7. The [[RBI_Report_198412_Committee on Trade Policies (1984)_Abid Hussain.pdf|Committee on Trade Policies (1984)]], under the chairmanship of Abid Hussain, also recommended strategies to boost exports like long-term trade policy, efficient import substitution, reduction of protectionism, etc.
8. ==By the late ‘eighties and the early ‘nineties, it was recognised that both macroeconomic policy and structural factors had contributed to balance of payment difficulties==.
Thus, prior to the 1990s, the Indian foreign exchange market (with a pegged exchange rate regime) was highly regulated with restrictions on transactions, participants and use of instruments.
The period since the early 1990s has witnessed a wide range of regulatory and institutional reforms resulting in substantial development of the rupee exchange market as it is observed today
## 1990s
1. Before 1990s, international capital flows were rather thin, and so not enough to finance the trade gap. Rather the external sector engagement was trade-dominated.
2. The Indian foreign exchange market (with a pegged exchange rate regime) was highly regulated with restrictions on transactions, participants and use of instruments.
1. Forex dealers-The license-permit regime made foreign exchange transactions rather straightforward in the sense that every transaction had to be backed by a license or a permit.
3. **July 1991**
1. By end-December 1990, the import cover of reserves, which fell to a low of 3 weeks of imports
2. On July 24, 1991, Manmohan Singh presented his first ever budget as part of P.V. Narasimha Rao's cabinet.
3. The words of Victor Hugo that Dr. Manmohan Singh quoted in his first budget speech: "no power on earth can stop an idea whose time has come." He had applied these words to the vision of emergence of India as an economic power.
4. The current account deficit widened to 3.0 per cent of GDP in 1990-91 and the foreign currency assets depleted to less than a billion dollar by July 1991.
5. India witnessed the balance of payments [crisis](https://www.imf.org/external/pubs/ft/staffp/2002/03/pdf/cerra.pdf), also known as [payments crisis](GoI_Budget%201992_The%20Payments%20Crisis-1991.pdf), but a sovereign default was prevented.
1. This [[FinMin_1991_The Economic Situation in 1990-91.pdf|file]] from the Union Budget of India archives details about the economic situation in 1990-91.
6. Three immediate [steps](https://inc.in/congress-sandesh/achievement/how-narasimha-rao-and-dr-manmohan-singh-rescued-india-in-1991-and-made-history) were taken
1. A two-step downward exchange rate adjustment (devaluation) by 9 per cent and 11 per cent between July 1 and 3, 1991 was done to counter the massive draw down in the foreign exchange reserves.
2. Gold holdings were pledged to obtain foreign currency.
3. Emergency loans of around $2 billion from [[Borrowing from IMF|IMF]] were secured. But to secure IMF support, India had to implement structural reforms, including liberalizing the exchange rate.
4. After [1993](https://www.imf.org/external/np/fin/tad/extarr2.aspx?memberkey1=430&date1Key=2025-11-30), India has not taken a recourse to [[Borrowing from IMF|IMF loans]].
7. Amongst the key contributing factors to the crisis were inappropriate exchange rate regime, unsustainable current account deficit and a rise in short term debt in relation to the official reserves.
8. The crisis was a decisive end to the pegged exchange rate regime.
9. Within a year, the Rupee had dropped by 59%.
10. The foreign exchange assets dipped to a low of US$ 975 million (Rs.2,492 crore) as on July 12, 1991.
4. **August 1991**
1. The govt. had announced a committee under the chairmanship of RBI governor M. Narasimham for proposing financial sector reforms.
2. Two reports were published by the committee in 1990s, that is, Narasimham Committee-I [[RBI_Report_199111_Committee on the Financial System_Narasimham Committee I.pdf|(November 16, 1991)]] and Narasimham Committee-II (Action taken on the recommendations) [[RBI_Report_20011031_Committee on Banking Sector Reforms-Action taken on the recommendations_ Narasimham Committee II.pdf|(1998)]]
5. [Aug 2, 1991](RBI_Speeches_1990802_Recent%20Exchange%20Rate%20Adjustments%20Causes%20and%20Consequences%20-%20Speech%20by%20C.%20Rangarajan_RBI%20Bulletin-Sept-1991.pdf) - ==Recent Exchange Rate Adjustments Causes and Consequences ==- Speech by C. Rangarajan
6. **1992**
1. The Liberalized Exchange Rate Management System (LERMS) was put in place in March 1992 involving the dual exchange rate system in the interim period.
1. Under the dual exchange rate system introduced in March 1992, authorised dealers had to surrender 40 per cent of all current receipts to the Reserve Bank at an official conversion rate. The remaining 60% could be sold at a market rate.
2. Even every inflow and outflow of FCNR deposits passed through RBI’s reserves.
3. The foreign currency that RBI received was used to pay for certain specified imports and debt service payments.
4. Therefore, foreign reserves were constantly moving (in and out) through RBI. RBI saw a huge daily turnover in foreign exchange.
5. Because RBI was responsible for so many inflows & outflows, it invested reserves in a way similar to how India owed money abroad.
6. This changed after 1993. There was a reduction in transactions passing through the reserves and as the level of reserves rose sharply, it was no longer feasible to deploy the reserves based on the pattern of the country’s liabilities.
2. The foreign exchange assets, which dipped to a low of US$ 975 million (Rs.2,492 crore) as on July 12, 1991, made a remarkable recovery and attained the level of US$ 5,631 million (Rs.14,578 crore) by the end of March 1992. [^12]
7. **High Level Committee on Balance of Payments (Chairman Dr. C. Rangarajan)**
1. It was constituted: on August 1992 and had submitted its report on January 10, 1993.
2. With regard to the exchange rate policy, the committee recommended that consideration be given to
1. a realistic exchange rate,
2. avoiding use of exchange mechanisms for subsidization,
3. maintaining adequate level reserves to take care of short-term fluctuations,
4. continuing the process of liberalization on current account, and
5. reinforcing effective control over capital transactions:
1. while liberalizing the private capital inflows, the Committee recommended, inter alia, a compositional shift in capital flows away from debt, especially short term debt, to non-debt creating flows,
2. strict regulation of external commercial borrowings,
3. discouraging volatile element of flows from non-resident Indians;
4. and gradual liberalization of outflows
3. ==The key to the maintenance of a realistic and a stable exchange rate is containing inflation through macro-economic policies and ensuring net capital receipts of the scale not beyond the expectation. ==
4. The Committee further recommended that a decision be taken to unify the exchange rate, as an important step towards full convertibility ^b7dfff
8. **1993**
1. The major changes in the exchange rate policy started with the implementation of the recommendations of the High Level Committee on Balance of Payments (Chairman: Dr. C. Rangarajan, 1993) to make the exchange rate market-determined.
2. On February 28, 1993, Sunday, in his final [budget speech](GoI_Budget%20Speech_1993-94_Dr.%20Manmohan%20Singh.pdf#page=8&selection=272,43,273,46) for the year 1993-94, Minister of Finance Shri Dr. Manmohan Singh made the announcement for unified single market-determined effective March 1, 1993.
1. This was a critical step indeed. A sense of [^2] trepidation prevailed when RBI took this step. With this move RBI would no longer announce the official rate (buying and selling rate) every morning.
2. Everyone waited with bated breath as to how market will open on day one.
3. On March 1, 1993 (Monday), after a 11-month period transition period, the dual exchange rate system (LERMS) was replaced by a unified single market-determined exchange rate system which would be based on the demand for and supply of foreign exchange.
4. All foreign exchange receipts could now be converted at market determined exchange rates.
5. As the basket-linked management of the exchange rate of the Rupee ==did not capture the market dynamics and the developments in the exchange rates of competing countries fully==, the Rupee’s external value was allowed to be determined by market forces in a phased manner following the balance of payment difficulties in the nineties.
6. <span style="background-color: #f1ffae">The exchange rate policy thus evolved from the rupee being pegged to the pound sterling until 1975, pegged to an undisclosed currency basket until 1992 and after a year's experience with dual exchange rate system to a fairly market-related system by March 1993. It tells us about flexibility in exchange rate management.</span>
7. ==The move did not preclude interventions by the central bank. Almost all central banks particularly in developing countries monitor, manage, and sometimes guide the rate. In other words, RBI moved toward a managed float regime with minimal interventions.
8. *Related- IMF's classification of exchange rate regime of India*
1. [IMF's Annual Report on Exchange Arrangements and Exchange Restrictions](https://www.imf.org/en/publications/sprolls/annual-report-on-exchange-arrangements-and-exchange-restrictions)
2. [Article IV consultation report - India](https://www.imf.org/en/countries/ind?selectedfilters=Article%20IV%20Staff%20Reports#whatsnew)
9. Since then the Reserve Bank’s exchange rate policy focusses on curbing excessive volatility of the exchange rate and ensuring orderly conditions in the foreign exchange market.
1. For the purpose, it closely monitors the developments in the financial markets at home and abroad.
2. When necessary, it intervenes in the market by buying or selling foreign currencies. These market operations are undertaken either directly or through public sector banks.
3. But the exchange value, by large, is getting "determined" by the demand-supply forces of the market, with RBI actively *monitoring and managing it to contain undue volatility.*
10. In short, after 1993, RBI's focus shifted to reducing volatility in value of rupee with respect to other foreign currencies.
11. ==The Indian currency became convertible on current account from August 1994, but not on [[Capital Flows - Account & Management|capital account]], by committing to conform to Article 8 of the IMF charter
1. The restrictions on capital account can be imposed by a member without the IMF's approval (Article VI, Section 3).
2. Current account restrictions generally require IMF approval, BUT trade-related measures like tariffs/duties and prudential regulations are allowed.
12. Trade tariffs were reduced, controls on volume were also removed. But in 1996, India focussed on controlling imports after the devaluation. This was a major difference between 1991 and 1966's devaluation. India embraced free trade in 1991.
1. FERA was replaced in 1999. So we can say that during the FERA regime, there was complete exchange control. Not only capital account, even current account transactions (till 1994) were also subject to control measures.
2. This also meant that the current account deficit could swell, but meeting this deficit would not have been a problem for the policymakers if the economy attracted capital flows.
13. A completely market determined exchange rate system still paved the way for greater openness not only in the current account, but also in the capital account by removing one of the three constraints of the impossible trinity: the fixed exchange rate.
14. This along with other economic reforms installed confidence in the investors and improved domestic competitiveness.
15. By 1994, the trade deficit had shrunk to one-sixth of what it was in 1991.
16. But the development of the forex market was not smooth in the beginning. The market participants were as hesitant as a bird that had been released from its cage after an age and often reluctant in offering two way quotes (Padmanabhan G. , 2015). Besides, they also probably did not have as much regulatory freedom as a market-maker would require.
17. In 1994, an Expert Group on Foreign Exchange Market in India was set up under the Chairmanship of Shri. O. P. Sodhani, the then Executive Director, Reserve Bank of India (popularly known as the Sodhani Committee), which went into this issue in great depth and detail.
9. [[RBI_Speech_19941121_Foreign Exchange Reserves Management an Indian Perspective_Speech_S.S Tarapore.pdf|Nov 1994]] - S.S Tarapore's speech on ==Foreign Exchange Reserves Management an Indian Perspective==, published in Nov 1994 edition of RBI Monthly Bulletin.
10. **1995**
1. In 1995, the Expert Group made several recommendations with respect to:
1. participants (like great deal of freedom to conduct their forex business in an efficient and cost-effective manner),
2. trading,
3. risk management - methodology for correct computation of Open Exchange Position to introduction of Rupee-based options
4. selective market intervention by the Reserve Bank to promote greater market development in an orderly fashion.
2. Consequently, the period starting from January 1996 saw wide-ranging reforms in the Indian foreign exchange market, which laid the laid the foundation for a modern foreign exchange market in India.
1. In essence, the exchange rate developments evolved side-by-side with the reform in the external sector of India.
3. In addition to the traditional instruments like forward and swap contracts, the Reserve Bank has facilitated increased availability of derivative instruments in the foreign exchange market.
1. ==It has allowed trading in Rupee-foreign currency swaps, currency swaps, foreign currency-Rupee options, cross-currency options, interest rate swaps, forward rate agreements and currency futures.==
4. The experience with a market determined exchange rate system in India since 1993 is generally described as ‘satisfactory’ as orderliness prevailed in the Indian market during most of the period.
5. Thus, the foreign exchange market has evolved over time as a deep, liquid (as as evident from low bid-ask spreads) and efficient market as against a highly regulated market prior to the 1990s.
6. *There have been occasions of disorderliness and turbulence in the market (which were effectively managed through timely monetary and administrative measures) since the floating rate regime came into existence but the regime has not been over turned yet.*
11. 1996 - [Box VI.1 - The Conduct of Exchange Rate Policy-The Analytics](RBI_Annual%20Report_1996.pdf#page=87&selection=4,0,20,8) in RBI's Annual Report 1996
12. **1999**
1. [[Capital Account - Liberalisation#FEMA, 1999 - Rules and Regulations|FEMA, 1999 (Act 42, 1999)]] was enacted to replace the restrictive FERA.
2. This marked a regime shift from regulation and conservation of scarce foreign exchange to a liberalised environment in which foreign exchange came to be regarded as a strategic asset. [^13]
3. It was almost created by the end of C. Rangarajan's tenure.
**Here we discuss the period of 1990s in terms of key events**
1. **Liberalisation of imports of gold**
1. One fact which often gets ignored is that liberalisation of gold imports brought a large segment of unofficial gold imports and the illegal forex market into the official sector, and reduced large transaction costs associated with illegal foreign exchange.
1. India had severely restricted gold imports since the Gold Control Rules (1962) and later the Gold Control Act (1968), strongly backed by Finance Minister Morarji Desai. These restrictions led to massive gold smuggling and a growing black market for gold and foreign exchange.
2. <span style="background-color:#F0FFFF;">Gold smugglers purchased foreign currency from the illegal hawala market, paying a 40–60% premium over the official USD/INR rate. These high illegal-market premiums are what RBI refers to as “large transaction costs incurred in foreign exchange.”</span>
3. The existence of a large illegal FX market weakened RBI’s ability to control the forex market and widened the gap between official and unofficial exchange rates.
4. The NRI Gold Import Scheme (1992) allowed NRIs to import gold legally. Its aim was not to reduce gold imports, but to shift them from illegal to legal channels, collapsing the hawala premium. Full liberalisation came later in 1997, when banks and nominated agencies (MMTC, STC, etc.) were allowed to import gold for domestic jewellers.
5. ==In fact, meaningful development of forex markets was enabled by this measure and consequently effectiveness of intervention in forex markets enhanced==. [^5]
6. The Gold Bond Scheme [(1993)](https://incometaxindia.gov.in/Communications/Circular/Others/910110000000000808/dtc49nl5.htm) reduced gold imports by allowing RBI to use domestically mobilised gold for reserves, eliminating the need to import equivalent amount of gold.
1. Individuals deposited physical gold with the government and received Gold Bonds. Interest was paid in rupees, principal amount matured in gold, viz., the same quantity deposited. About 1.3 million ounces (around 40 tonnes) were mobilized. They were also exempted from taxes or any punishment for holding illegal gold.
2. _The first gold bond scheme was introduced in 1962_.
2. **Foreign investments after 1993**
1. It was less than $0.6 billion in 1992-93.
2. It surged to $4.1 billion in 1993-94 and is expected to be well over $5 billion in 1994-95.
1. FCNR(A) accounts - While this surge in foreign investment had occurred, there were also outflows as the excessive reliance on costlier non-resident deposit schemes (Foreign Currency Non-Resident (FCNR(A) Scheme), with exchange rate protection from the authorities was phased out with effect from 15th August 1994.
2. FCNR(A) accounts were opened and maintained by authorised dealers in India designated in certain foreign currencies.
3. **Pegged rate:** In the period of 19 months from November 1993 to 3/3/1995, RBI maintained a fixed rate of US $1 = Rs.31.37 due to high capital flows. [^6]
1. Under the market-determined system, this pegged rate of the RBI can be described as passive intervention i.e., the RBI would not intervene if the fundamentals led to a depreciation of the rupee though the peg does prevent an appreciation; an appreciation would not be justified on the basis of fundamentals as Indian inflation rates are higher than in the US.
2. But the accretion in foreign exchange reserves also increased the currency in circulation.
3. To sterilise the accretion in reserves, *though partially*, RBI had tightened monetary policy through increase in CRR and limited OMOs as [^7]
1. the govt. bonds market was not deep and liquid enough due (to the automatic monetisation of debt),
2. It also did not have enough stock of marketable securities to sterilise the intervention through open market sale of government securities.
3. there was a sharp increase in supply of govt. securities as fiscal deficit had also fallen to 7.5 percent of GDP but was budgeted to fall to only 4.7%. RBI was already doing open
4. selling more bonds in the market would further raise domestic interest rates leading to more capital flows.
5. the resulting monetary expansion increased liquidity in the economy, lowered real interest rates, and stimulated investment, which govt. did not want to obstruct.
6. Appreciation in real exchange rate, higher imports growth driven increased industrial activity, increased CAD to nearly USD 6 billion. As they were not funded by capital flows, official forex reserves also fell, and so did the stock of money.
4. It was however the abolition of automatic monetization (since April 1, 1997), and allowing the marketization (selling bonds in the open market) of Government borrowings enhanced RBI's capacity to conduct open market operations to sterilize the capital inflows.
5. Rather, currency intervention by the RBI in the 1990s has usually taken the form of a net purchase of dollars that prevented the rupee from appreciating.
4. The reforms in the 1990’s in India and elsewhere were also facilitated by the dismantling of the Soviet Russia and the Eastern Bloc countries and triumph of the free market over central planning and control.
5. **Devaluations:**
1. As discussed above, ==India devalued Rupee in 1949, 1966 and 1991.==
2. Many arguments were put forth against the devaluation:
1. The move surrendered Indian sovereignty to external pressure
2. There were views that devaluation will not be effective in narrowing the trade deficit because of the structural inflexibilities of the Indian exports and imports.
3. Effectiveness of devaluation - Yet, statistics shows that on both occasions, the impact of the devaluation on trade deficit was phenomenal.
4. *Thus devaluation, or depreciation in a flexible exchange rate regime, may be bad politics but often is good economics.
> Further Reading:
> 1. 1996 - [Box VI.1 - The Conduct of Exchange Rate Policy-The Analytics](RBI_Annual%20Report_1996.pdf#page=87&selection=4,0,20,8) in RBI's Annual Report 1996
> 2. Rangarajan, C. (2015, March 13). _Issues in India’s external sector_ (5th Raja Chelliah Memorial Lecture, Raja Chelliah Memorial Lecture Series). National Institute of Public Finance and Policy (An autonomous research institute under the Ministry of Finance). [Link](https://www.nipfp.org.in/cms-index-page/publications/raja-chelliah-lectures/) | [pdf](NIPFP_20150313_Issues%20in%20India’s%20external%20sector_C%20Rangarajan.pdf)
> 3. [Chapter 11: The Balance of Payments Crisis of 1991](RBI_History%20of%20The%20Reserve%20Bank%20of%20India%20(1981-97)_Volume%20IV.pdf#page=453&selection=1,0,1,38) in History of The Reserve Bank of India (1981-97)-Volume IV
> 4. [Chapter 12: Management and Resolution of the 1991 Crisis](RBI_History%20of%20The%20Reserve%20Bank%20of%20India%20(1981-97)_Volume%20IV.pdf#page=479&selection=1,0,2,18) in History of The Reserve Bank of India (1981-97)-Volume IV
> 5. [Chapter - 5. Foreign Exchange Reserves Management](RBI_History%20of%20The%20Reserve%20Bank%20of%20India%20(1997-2008)_Volume%20V.pdf#page=179&selection=4,0,4,36) in History of The Reserve Bank of India (1997-2008)-Volume V
> [!Quote]
> After going to IMF in 1991, India took reforms very seriously.
> -C. Rangarajan [^10]
> [!normalp]
> Thus the period since the early 1990s witnessed a wide range of regulatory and institutional reforms, of which the reforms focussed on the management of the external sector were hugely successful, resulting in substantial development of the rupee exchange market as it is observed today.
>
> **The 3 landmarks of exchange control regime after the 1991 crisis would be:** [^11]
> 6. Adoption of a market determined exchange rate system in 1993,
> 7. Commitment to conform to Article 8 of the IMF charter – current account convertibility – in 1994 and
> 8. Enactment of FEMA in 1999 – removing the shackles of a repressive regime.
## Present Status
> [!normal]
> The conduct of exchange rate policy is guided by 3 major purposes: [^4]
> 1. first, as stated in preamble to the Foreign Exchange Management Act, 1999 (Act 42 of 1999), to reduce excess volatility in exchange rates, while ensuring that the movements are orderly and calibrated
> 1. India has a **managed free float exchange rate regime**. The exchange rate is determined by the market, i.e. forces of demand and supply and RBI intervenes in the foreign exchange market, whenever necessary, to maintain orderly conditions and curb _excessive_ volatility, without targeting any particular level of the exchange rate of Rupee, and in the process stabilizes the market sentiments.
> 1. The merchant segment of the spot market is generally dominated by the govt. of India, select public sector units, such as OMCs, and the FIIs.
> 2. The demand-supply mismatches on account of them entail occasional pressures on the foreign exchange market, warranting market interventions by the Reserve Bank to even out lumpy demand and supply. However, as noted earlier, such intervention is not governed by a predetermined target or band around the exchange rate.
> 3. The exchange rate of the Indian rupee vis-à-vis US dollar appreciated when there were large capital inflows; and it depreciated when the capital inflows thinned out, and this two way movement in exchange rate is a clear demarcation of our flexible exchange rate policy. [^14]
> 2. to help maintain an adequate level of foreign exchange reserves,
> 3. to help eliminate market constraints with a view to the development of a healthy foreign exchange market.
Fixed/Pegged exchange rate regime - Few countries like Hong Kong, UAE, Saudi Arabia, China (and Hong Kong) have adopted this regime, where the rates are maintained with a narrow range with the help of central banks intervention.
## Summary
1. India’s exchange rate policy has evolved over time in line with the gradual opening up of the economy as part of the broader strategy of macroeconomic reforms and liberalization since the early 1990s.
2. ==An interesting [question](https://www.mercatus.org/ideasofindia/chakravarthi-rangarajan-monetary-policy-after-liberalization) here could be why India didn’t Have currency crises After 1991?== #Rangarajan
## Factors driving exchange rate
1. The foreign exchange market deals with currencies and a foreign currency is but a commodity vis-a-vis the domestic currency.
1. The price is the exchange rate. Any price has two determinants. The supply factor and the demand factor in the forex market .The first can be seen to be derived from the cost of production and the second from the factors that affect demand, utility for instance.
2. **Long-run:** In the long run, the exchange rate depends on economic factors/fundamentals like inflation, interest rates, etc., *which can be affected due to various events (US Dollar Index, oil prices, foreign portfolio flows, US financial conditions expected equity market volatility, etc).* Among these, the *purchasing power parity [(PPP)](https://www.elibrary.imf.org/view/journals/001/1989/052/article-A001-en.xml)* principle/theory [^9] tells us about the the role of spot exchange rate and the inflation differentials and between countries as a key determinant of the exchange rate.
1. At the same time, foreign exchange can also be viewed as a financial assets, and we know that the prices of all financial assets are forward looking and are based on the expectation of the future state of the world. Thus, if expectations of future state of these factors is promising or discouraging, the country can face large capital inflows or outflows, leading to stronger or weaker currency.
2. The other three parities are:
1. the International Fisher Relation which links interest rates and inflation.
2. the Foreign Exchange Expectations which link forward exchange rates and expected future spot exchange rates.
3. the Interest Rate Parity, which links spot exchange rates, forward exchange rates and interest rates.
3. **Short-run:** In the short-run there can be significant deviations in the exchange rate dictated by the fundamentals, as the exchange rate movements are driven by expectations of returns from holding different currencies. *In the simplest case*, these expectations arise from short-term interest rate differentials between countries.
1. However, in reality, exchange rates often follow a random walk (moving unpredictably), much like other financial assets, and reflecting shifting market (risk) sentiment driven by speculation, rumours, or news about global events rather than by predictable economic fundamentals.
2. To quote Alfred Marshall[^3], “_We might as reasonably dispute whether it is the upper or the lower blade of a pair of scissors that cuts a piece of paper, as whether value is governed by utility or cost of production. It is true that when one blade is held still, and the cutting is effected by moving the other, we may say with careless brevity that the cutting is done by the second; but the statement is not strictly accurate, and is to be excused only so long as it claims to be merely a popular and not a strictly scientific account of what happens (Marshall [1890] 1997, 290_).”
4. Though the exchange rate can be measured in several ways such as REER, NEER with different combinations of currencies and different weighing schemes, the fluctuations in the headline INR-USD rate (which drives sentiments and decisions) are caused by sentiments and perceptions of a host of events, some domestic and some global.
5. An example:
1. As forex dealers say, “Buy the rumour, Sell the news”. We have had many such episodes.
2. Example-During the last one year or so before 2019 the Rupee saw levels of 64 to a dollar in March 2018, depreciated to near-75 levels in October 2018 and again appreciated to 68+ levels by March, 2019 and has been trading almost flat since then. During this one year, there has not been any change in the fundamentals of the Indian economy, nor any dramatic change in the global conditions either.
3. The cause mostly has been surge or ebb in capital flows, driven by perceptions and risk aversion or appetite. However, understanding these gyrations in the exchange rate does not provide any solace to the policy maker: there is a response necessary lest the expectation turn to panic and bring a great deal of disorderliness in the market in its wake.
6. In short, we can say the four critical variables [^8] that are often used in exchange rate management policies, viz., ==the interest rate differential, the inflation differential, the forward discount/premium, and the exchange rate movement==.
## Why is it important to manage exchange rate?
1. Exchange rate is an important macro-variable with implications for trade, capital flows (and hence balance of payments), monetary policy, and several other derived issues.
2. It affects optimal decision making of the economic agents in the real sector, and shapes a country’s engagement with the rest of the world.
3. It affects:
1. value of international investments, can lead to higher refinancing risk,
2. country’s export competitiveness, of course in conjunction with other factors and its income and employment to the extent that export sector is important for the economy,
3. value of international reserves, debt payments,
4. the cost to tourists in terms of the value of their currency
5. the price level through the linkages provided by the trade-able sector.
4. It determines the cost of import and to the extent that import constitutes articles essential for investment and growth, can act as a retarding factor.
5. In all-it has implications for the local businesses, current account (trade) and capital account flows.
6. Flexible exchange rate policy (like letting the currency appreciate in times of capital inflows) when our trading partner or countries for the same export market have fixed exchange rate can be unfavorable to us.
7. Stable exchange rate helps us to avoid borrowing in FCY. In his speech on [May 18, 2015](RBI_Speeches_20150518_Is%20India%20ready%20for%20full%20Capital%20Account%20Convertibility?.pdf), G. Padmanabhan stated:
1. *"In economics, the term ‘original sin’, coined by Barry Eichengreen and others, has been used to describe the inability of countries to borrow abroad in their own currency which lies at the heart of currency crisis and financial fragility. As Krugman points out, :....Beyond that, however, even if a sudden loss of confidence does take place, countries that have their own currencies and borrow in those currencies are simply not vulnerable to the kind of crisis so widely envisaged. Remarkably, nobody seems to have laid out exactly how a Greek-style crisis is supposed to happen in a country like Britain, the United States, or Japan (that borrow in their own currency) – and I don’t believe that there is any plausible mechanism for such a crisis.”*
2. And the exact reason behind "original sin" is foreign investors refuse to take the exchange rate risk of an unstable currency, so they force the developing country to borrow in foreign currency like dollars instead.
The importance of exchange rate cannot be over emphasised for developing countries. *For instance, it has got special importance for India like unemployment for Americans and inflation for Germans.*
<span style="background-color:#fff9ae;">India's case - Major [[Measures to stabilise the exchange market#Major causes of depreciation of Rupee|factors]] that have caused depreciation of rupee.</span>
## Stability in Exchange Rate
> [!normalg]
> 1. How to ensure that the exchange rate remains stable and, as is stated in the preamble to FEMA, 1999, how to preserve orderliness in the foreign exchange market?
> 2. Note the exchange rate *will be stable and not fixed*, and therefore, there will be some volatility in the foreign exchange market.
> 3. This [[Capital Flows - Account & Management#Managing Capital Flows|note]] talks about responses/instruments to manage flows in short-run:
> 1. **Doing nothing/flexible exchange rate.**
> 2. **Intervention by the central bank**- Intervention has got costs and other implications like
> 1. *negative carry of the foreign exchange reserves when RBI buys forex exchange in times of inflows*
> 2. interference with the monetary policy framework.
> 3. cost to sterilization of intervention operations, etc., depending upon whether intervention consist of buying or selling foreign exchange.
> 4. moral hazard & complacency - markets believe RBI will always actively manage volatility, leading them to take unhedged or excessive risks.
> 5. Thus this is to be used only in extreme situations and cannot be a part of the policy framework.
> 3. **Capital Controls**
> 1. The strategy, therefore, seems to be a combination of some capital controls and flexible exchange rate.
> 2. The role of active capital account management through selective capital control measures in preserving stability in preserving stability in the external sector and foreign exchange market has now been well recognised in the aftermath of the global financial crisis.
> 3. They are desirable in certain circumstances even when the exchange rate is flexible.
> 4. In the 2016, the Bank of Japan Governor Kuroda was reported to have advised China to ‘_impose capital controls to defend the yuan rather than keep burning through currency reserves’_ [4](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1008#A4).
> 5. India also calibrated the outflows permitted under the Liberalized Remittance Scheme [[External - Overseas Investments#Liberalised Remittance Scheme (LRS)|(LRS)]] and the inflows under the External Commercial Borrowings [[Foreign Investment in India (Various Routes)#2. ECB (Debt in Rupee and FCY)|(ECB)]] framework.
> 4. ==In the long-run the [[Exchange Rate Policy#^b7dfff|key]] to the maintenance of a realistic and a stable exchange rate is containing inflation through macro-economic policies and ensuring net capital receipts of the scale not beyond the expectation.==
## Theories of exchange rate determination
1. [[Exchange rate determination - Various theories|Link]]
## Monetary Policy and Exchange Rate
Some related concepts here:
1. A [[Liquidity and Exchange Rate|note]] on monetary approach to exchange rate.
2. Is there a [[External - Flexible Exchange Rate and Monetary Policy Independence - OPEN|monetary policy independence]] under a Flexible Exchange Rate Regime
## Related
1. [Forex Reserves](Forex%20Reserves.md)
2. [[Measures to stabilise the exchange market]]
3. [[Forex Markets]]
4. [[Liquidity and Exchange Rate]]
5. [[Foreign Exchange Management#External Sector|External Sector]]
## References
### [[Speeches & Media Interactions|Speeches]]
1. S.S Tarapore. (Nov, 1994). Foreign Exchange Reserves Management an Indian Perspective. RBI Monthly Bulletin. [[RBI_Speech_19941121_Foreign Exchange Reserves Management an Indian Perspective_Speech_S.S Tarapore.pdf|pdf]]
2. Y.V. Reddy. (Aug 15, 1997). Exchange Rate Management : Dilemmas \[Inaugural Address\]. XI<sup>th </sup>National Assembly Forex Association of India at Hotel Cidade De Goa. RBI. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=231) | [pdf](RBI_Speech_19970815_Exchange%20Rate%20Management%20-%20Dilemmas_Y.V.Reddy.pdf)
3. RBI. (1998). Report of the Committee on Banking Sector Reforms-Narasimham Committee-II. [pdf](RBI_Group-Committee_19980422_Report%20of%20the%20Committee%20on%20Banking%20Sector%20Reforms-Narasimham%20Committee%20–%20II%20(1998).pdf)
4. Rangarajan C. (1998). Indian Economy: Essays on Money and Finance. UBS Publishers’ Distributors Limited.
5. Y.V. Reddy. (2000). Monetary and Financial Sector Reforms in India: A Central Banker's Perspective. UBS Publishers' Distributors.
6. Y.V. Reddy. (2002, May 10). India’s Foreign Exchange Reserves : Policy, Status and Issues. National Council of Applied Economic Research, New Delhi. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=109) | [[RBI_Speech_20020510_India’s Foreign Exchange Reserves - Policy, Status and Issues by Y.V. Reddy_.V. Reddy.pdf|pdf]]
7. Bimal Jalan. (2003, August 14). *Exchange Rate Management: An Emerging Consensus?* Address at the 14th National Assembly of the Forex Association of India, Mumbai. RBI. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=133) | [[RBI_Speech_20030814_Exchange Rate Management- An Emerging Consensus? - Dr. Bimal Jalan, Governor, Reserve Bank of India, at 14th National Assembly of Forex Association of India.pdf|pdf]]
8. Subbarao, D. (May 11, 2010). Volatility in capital flows: Some perspectives [Speech]. High-level Conference on ‘The International Monetary System’, Swiss National Bank and the International Monetary Fund, Zurich. Reserve Bank of India. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=504)
9. G Padmanabhan (ex-Executive Director, RBI). (2015, April 3). *Musings of a Departing Forex Market Regulator* \[Speech\]. Foreign Exchange Dealers Association of India Conference at Brussels. RBI. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=953) | [[RBI_Speech_20150406_Musings of a Departing Forex Market Regulator_G Padmanabhan_06042015.pdf|pdf]]
10. Harun R Khan (ex-Deputy Governor of RBI. (2016, June 11). *Foreign Exchange Market & Cross-border Transactions: Some Random Reflections*. 11th Annual Conference of the Foreign Exchange Dealers Association of India (FEDAI), Hong Kong. RBI. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1008)| [[RBI_Speech_20160611_Foreign Exchange Market & Cross-border Transactions- Some Random Reflections.pdf|pdf]]
11. Kanungo, B.P. (Apr 25, 2019). *India’s growing significance in global arena. Is it Sustainable? Are we ready for it?* FEDAI Annual Conference at Beijing. RBI. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1074)
### [[Publications (Data Releases) & Research#Research|Research]]
1. De Vries, M. G. (2007). _IMF History, 1972-78, Volume I_. International Monetary Fund. [Link](https://www.elibrary.imf.org/display/book/9781451922684/front-1.xml)
2. Dr. Ashok K. Lahiri (Executive Director, Asian Development Bank, Manila). (2009, January 16). *Indian Financial Reforms: National Priorities Amidst An International Crisis.* \[Speech\]. Sir Purushotamdas Thakurdas Memorial Lecture organized by IIBF. Mumbai. [[IMF_INDIAN FINANCIAL REFORMS- NATIONAL PRIORITIES AMIDST AN INTERNATIONAL CRISIS_Ashok Lahiri_IMF_16012009.pdf|pdf]]
3. Dua, P., & Ranjan, R. (2010, February 25). _Exchange rate policy and modelling in India_. Reserve Bank of India. [Link]((https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=12252) | [pdf](RBI_Research_DRG_20100225_Exchange%20rate%20policy%20and%20modelling%20in%20India.pdf)
4. G. Padmanabhan (ex-Executive Director, RBI). (2012, July 30). *Managing Currency Risk in the New Normal.* \[Speech\]. Iforex Leaders Summit, Mumbai on July 28, 2012. RBI [Link](https://rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=13477) | [[RBI_Speech_20120810_Managing Currency Risk in the New Normal_G. Padmanabhan.pdf|pdf]].
5. Dr. C. Rangarajan (Former Governor, Reserve Bank of India). (2015, March 13). *Issues In IndIa’s external sector.* 5th Dr. Raja J. Chelliah Annual Memorial Lecture at the National Institute of Public Finance and Policy, New Delhi. National Institute of Public Finance and Policy. [[NIPFP_Lecture Series_150313_Issues In IndIa’s external sector_Dr. C. Rangarajan.pdf|pdf]]
### [[Publications (Data Releases) & Research#Publications|Publications]]
1. RBI. (Nov 16, 1991). Report of the Committee on Financial Sector Reforms-Narasimham Committee-I. [pdf](RBI_Report_199111_Committee%20on%20the%20Financial%20System_Narasimham%20Committee%20I.pdf)
2. RBI. (Aug 29, 1992). RBI Annual Report 1991-92. [Link](RBI_Annual%20Report_1992.pdf)
3. GoI. (1993). Report of the High Level Committee on Balance of Payments (Chairman: C. Rangarajan).
### Others
1. de Vries, M. G. (1976). Road to the Smithsonian Agreement (August 16–December 18, 1971). In The International Monetary Fund, 1966-1971: The system under stress (Vol. 1, pp. 461–494). IMF. [pdf
2. B. M. Bhatia (1974). India’s Deepening Economic Crisis. Book. S Chand & Co Pvt. Ltd.
3. Union Budget of India Archives. Chapter 1-The economic situation in 1990-91. [Link](https://www.indiabudget.gov.in/budget_archive/es1990-91/1%20The%20Economic%20Situation%20in%201990-91.pdf) | [[FinMin_1991_The Economic Situation in 1990-91.pdf|pdf]]
4. Garber, P. M. (1993). The collapse of the Bretton Woods fixed exchange rate system. In M. D. Bordo & B. Eichengreen (Eds.), A retrospective on the Bretton Woods system: Lessons for international monetary reform (pp. 461–494). University of Chicago Press. [Link](https://www.nber.org/chapters/c6876) | [[NBER_9301_The Collapse of the Bretton Woods Fixed Exchange Rate System.pdf|pdf]]
5. Braj Kumar (B.K.) Nehru. (1997). Nice Guys Finish Second. Book. India: Viking.
6. Shankar Acharya (ICRIER). 2001. India's Macroeconomic management in the 1990s. ICRIER. [Link](https://icrier.org/pdf/Book1.pdf) | [pdf](ICRIER_Research%20_0110_India's%20Macroeconomic%20management%20in%20the%201990s_Shankar%20Acharya.pdf)
7. Virmani, A. (2001). India’s bop crisis and external reform, Technical report, ICRIER. [[ICRIER_Research_0112_India's BoP Crisi and External Reforms- Myths and Paradoxes_Arvind Virmani.pdf|pdf]]
8. Cerra, V., & Saxena, S. C. (2002). What caused the 1991 currency crisis in India?. IMF Staff Papers, 49_(3), 395–425. [Link](https://doi.org/10.5089/9781451858118.001)
9. Ila Patnaik (ICRIER). (October, 2003). *The consequences of currency intervention in India*.
10. Narendra Jadhav. (April 4–6, 2005). _Exchange rate regime and capital flows: The Indian experience_ [Paper presentation]. Chief Economists' Workshop, Centre for Central Banking Studies (CCBS), Bank of England, London, United Kingdom. [pdf](Narendra%20Jadhav_200504_Exchange%20Rate%20Regime%20Capital%20Flow.pdf)
11. Rangarajan, C. (2015, March 13). _Issues in India’s external sector_ (5th Raja Chelliah Memorial Lecture, Raja Chelliah Memorial Lecture Series). National Institute of Public Finance and Policy (An autonomous research institute under the Ministry of Finance). [Link](https://www.nipfp.org.in/cms-index-page/publications/raja-chelliah-lectures/) | [pdf](NIPFP_20150313_Issues%20in%20India’s%20external%20sector_C%20Rangarajan.pdf)
12. Rajagopalan, S. (April 13, 2013). _Chakravarthi Rangarajan on monetary policy after liberalization_ [Interview]. Mercatus Center. [Link](https://www.mercatus.org/ideasofindia/chakravarthi-rangarajan-monetary-policy-after-liberalization/](https://www.mercatus.org/ideasofindia/chakravarthi-rangarajan-monetary-policy-after-liberalization/)
13. V. Srinivas. (2019). *India’s Relations With The International Monetary Fund (IMF) -25 Years In Perspective 1991-2016* \[Book\]. Vij Books India Pvt. Ltd. [[Book_2020_V. Srinivas_India’s relations with the International Monetary Fund (IMF)- 25 years in perspective 1991–2016.pdf|pdf]]
[^1]: Capie, F., & Wood, G. (1994). [Causes of the devaluation](https://www.cambridge.org/core/books/an-exchange-rate-history-of-the-united-kingdom/1949-devaluation/49349FC27956016AD928C6A7347EB0D3). In _An exchange rate history of the United Kingdom: 1945–1992_ (pp. 18–34). Cambridge University Press
[^2]: Shri. G Padmanabhan (ex-Executive Director, RBI). (2015, April 3). *Musings of a Departing Forex Market Regulator* \[Speech\]. RBI. Foreign Exchange Dealers Association of India Conference at Brussels.
[^3]: Harun R Khan (ex-Deputy Governor of RBI. (2016, June 11). *Foreign Exchange Market & Cross-border Transactions: Some Random Reflections* \[Speech\]. 11th Annual Conference of the Foreign Exchange Dealers Association of India (FEDAI), Hong Kong. RBI. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1008)| [[Foreign Exchange Market & Cross-border Transactions- Some Random Reflections_RBI_21062016.pdf|pdf
[^4]: Y.V. Reddy. (2002, May 10). *India’s Foreign Exchange Reserves : Policy, Status and Issues*. National Council of Applied Economic Research, New Delhi. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=109) | [[RBI_Speech_20020510_India’s Foreign Exchange Reserves - Policy, Status and Issues by Y.V. Reddy_.V. Reddy.pdf|pdf]]
[^5]: Y.V. Reddy. (2002, May 10). *India’s Foreign Exchange Reserves : Policy, Status and Issues*. National Council of Applied Economic Research, New Delhi. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=109) | [[RBI_Speech_20020510_India’s Foreign Exchange Reserves - Policy, Status and Issues by Y.V. Reddy_.V. Reddy.pdf|pdf]]
[^6]: S.S Tarapore. (November, 1994). *Foreign Exchange Reserves Management an Indian Perspective* \[Speech\]. *RBI Monthly Bulletin*. [[RBI_Speech_19941121_Foreign Exchange Reserves Management an Indian Perspective_Speech_S.S Tarapore.pdf|pdf]]
[^7]: Ila Patnaik (ICRIER). (2003, October). The consequences of currency intervention in India.
[^8]: Dr. Y.V. Reddy. (1997, August 15). Exchange Rate Management : Dilemmas \[Inaugural Address\]. XIth National Assembly Forex Association of India at Hotel Cidade De Goa. RBI. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=231) | [pdf](RBI_Speech_19970815_Exchange%20Rate%20Management%20-%20Dilemmas_Y.V.Reddy.pdf)
[^9]: Purchasing Power Parity (PPP) was suggested by Swedish economist Gustav Cassel. According to him, over the long run, exchange rates should adjust so that the price of an similar basket of goods and services is the same in both countries.
[^10]: Rajagopalan, S. (2023, April 13). _Chakravarthi Rangarajan on monetary policy after liberalization_ [Interview]. Mercatus Center. [Link](https://www.mercatus.org/ideasofindia/chakravarthi-rangarajan-monetary-policy-after-liberalization)
[^11]: Kanungo, B.P. (2019, Apr 25, 2019). *India’s growing significance in global arena. Is it Sustainable? Are we ready for it?* FEDAI Annual Conference at Beijing. RBI. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1074)
[^12]: Aug 29, 1992. RBI Annual Report 1991-92. [Link](RBI_Annual%20Report_1992.pdf)
[^13]: RBI. (Dec, 2022). History of The Reserve Bank of India (1997-2008)-Volume V. [pdf](RBI_History%20of%20The%20Reserve%20Bank%20of%20India%20(1997-2008)_Volume%20V.pdf)
[^14]: Subbarao, D. (May 11, 2010). Volatility in capital flows: Some perspectives [Speech]. High-level Conference on ‘The International Monetary System’, Swiss National Bank and the International Monetary Fund, Zurich. Reserve Bank of India. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=504)