Rupee Crisis and implication thereof

Indian Rupee

The current rupee crunch that Bhutan is facing today, as far as I am concerned, was as sure as eggs. It was, in fact, bowed to the inevitable. To me, it was just a matter of how worse would it get and when?

Just have a look around your house and it will tell you how dependent you are to India. I don’t know about yours- almost everything I have in my house is imported from India including the broom behind my door.  The question however is,- is it bad? Not necessarily I would say. United States, for example has everything imported from China. You can hardly find products made in USA in many of the malls there and so is the case with Australia.

Where is the problem then? The problem lies with imbalance of trade and thus payment. Unlike USA and Australia, we are simply importing much more than what we are exporting.  Was that avoidable? Absolutely not! It is only rationale to demonstrate our economic prosperity through increased pattern of consumption. As much as desirable, the rate at which our economy has grown and growing is directly responsible for this crisis and I would neither blame government nor private sector directly.

Had it not been for Bhutan, situation like this could have already resulted into major financial and economic crisis in the region. Latin American Crisis of 1994 and Asian Crisis of 1997 are some of the legendary examples of how currency crisis can trigger major crisis in the economy. 

The first thing any rationale person would do in such a situation is sell Ngultrum or convert whatever Ngultrum you have into other stable currency or buy gold.  Reaction of such nature, if the market is efficient, will distort market equilibrium by increasing supply and decreasing demand for Ngultrum in the economy. This will invariably lead to what analyst would call ‘loss of confidence’ to our Ngultrum.   Thanks to dead and inefficient capital market, absence of foreign exchange market, un-integrated economy and innocent people- we still have confidence in our own Ngultrum.

To be continued....