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Indian Rupee plunges; Signs of a currency in crisis

Indian Rupee: Oh so not sexy

In this posting “Why should individuals invest in foreign currency?“, one of the reasons for an individual to hold foreign currencies is to protect and diversify. This is because a currency can lose value very quickly during a crisis if investor confidence is shaken. When a currency depreciates quickly, natives holding on to the currency suffer diminishing purchase power and erosion of wealth. Ultimately individuals experience hardship while the overall economy spins out of control.

This was what I experience myself in Thailand back in 1998.

My Thai experience

I had the chance to visit Bangkok in Thailand during the Asian Financial Crisis in 1998. The exchange rate between the Singapore Dollar and the Thai Baht moved from a stable pre-crisis rate of around 1 Singapore Dollar to 16 Baht to crisis rate of 24 Baht. Against the Singapore Dollar, the Thai individuals experienced a loss of purchasing power by 50%. It meant also destruction of the real value of cash assets.

Thai businesses I encountered asked me to make my payments in Singapore Dollar. The Singapore Dollar (an investment in a foreign currency to Thais) was a lot sexier to hold on to in a crisis.

 

India Rupee plunges in downward spiral

For reasons that belong to another story, India is now exhibiting the signs of a not so sexy currency and India nationals are rushing to get out of the Indian Rupee. Over the last three months, the Indian Rupee lost 20 percent against the US Dollar. This is what TradingEconomics.com reports:

The USDINR spot exchange rate appreciated 4.7995 or 7.84 percent during the last 30 days. From 1973 until 2013, the USDINR averaged 31.8500 reaching an all time high of 68.8300 in August of 2013 and a record low of 7.1900 in March of 1973. The USDINR spot exchange rate specifies how much one currency, the USD, is currently worth in terms of the other, the INR.

Indian Rupee

Source: TradingEconomics.com

 

Flight to Singapore Dollar, Gold and DIAMONDS!

According to this report on SovereignMan:

This is panic: Smuggling diamonds out of India

My colleagues tell me that Indian nationals are coming here by the planeful trying to move their money to Singapore.

As a result, the government in India has imposed severe capital controls. They’ve locked people’s funds down, restricted foreign accounts, and curbed gold imports.

People are panicking. They’ve already lost confidence in the system… and as the rupee plummets, they’re taking whatever they can to Singapore.

As one of my bankers put it, “They’re getting killed on the exchange rates. But even with the rupee as low as it is, they’re still changing their money and bringing it here.”

Many of them are taking serious risks to do so. I’ve been told that some wealthy Indians are trying to smuggle in diamonds… anything they can do to skirt the controls.

This report and many others tell a story of Indians converting their money to gold. An Indian Rupee crisis has begun. Individuals are selling their Rupees to other currencies such as the Singapore Dollar in order to preserve their purchasing power and wealth. Diamonds and Gold are valuables that represent the highest form of money i.e. store of value and mode of exchange.

 

3 signs of an Indian Rupee in crisis

  1. Rapid depreciation; loss of value against foreign currencies – √
  2. Natives scramble for means to protect purchasing power, wealth by diversifying into foreign currency, valuables such as gold, silver, diamonds – √
  3. Government imposes capital control to prevent flight (like what Malaysia did during Asian Financial Crisis; Malaysia pegged the Ringgit to the US Dollar in 1998 following speculative attack on the Malaysian currency) – √

 

Is Gold money? Here is a treat even if you have watched it before

Dr Ron Paul and Mr Jim Rogers spoke at the Sovereign Man: Offshore Tactics Workshop in Santiago, Chile, on March 30 – April 1, 2013. The video is just over 3 minutes so no matter what, it is a MUST WATCH.

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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2 thoughts on “Indian Rupee plunges; Signs of a currency in crisis”

  1. Teck Chye Daniel Lam says:

    Wow. Sounds like if the US increases interest rates to hedge against self-inflicted inflation, singaporeans will find it hard to pay their mortgage loans. If they continue printing money, the us currency pairs are likely to devalue further.

    1. Soh Tiong Hum says:

      Experts point to distortions in global economy due to US policies. If you look at this page ‘Singapore’s central bank lost 87% of GDP growth fighting Bernanke‘, MAS made huge losses intervening in FX market to stop Singapore Dollar from rising too quickly against the US Dollar. The MAS report quoted is here.

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