Wars of the currency kind

Wars of the currency kind


  1. Recently, RBI Governor Urjit Patel warned that the global trade war could escalate into a currency war.

Important facts:

2. Trade wars erupt when countries impose tit-for-tat tariffs on imported goods, to protect domestic manufacturers.

3. Currency wars:

  • Currency wars are triggered when nations either allow their currencies to weaken appreciably or devalue them to gain a competitive advantage over trade rivals.
  • If other countries react by devaluing their respective currencies to retain competitiveness, this could lead to instability in markets.

4. Devaluation:

  • Devaluation is a policy tool to reduce the value of a currency, relative to other currencies, in a fixed exchange rate.
  •  It is used to set the relative prices of domestic and international goods and services at a new footing.
  •  Devaluation is different from depreciation, which is a decrease in the currency’s value due to market forces of demand and supply when the exchange rate of the currency is floating.
  • Governments may resort to devaluation for any one of three major reasons:

5. To boost exports:

  • The lowered value of the domestic currency will make it less expensive for foreign buyers to obtain the local currency to buy locally produced goods or services.
  • More goods and services would be sold abroad, helping domestic businesses reliant on export markets such as software services companies, pharma firms and seafood exporters.

6. To shrink a trade deficit:

  • Devaluation while making exports more competitive also makes imports more expensive and hence less affordable.
  • This helps reduce the volume of non-essential imports thus helping to narrow the trade gap.

7. To reduce the debt servicing burden: nations with significant sovereign debt sold domestically may find it advantageous to let the currency weaken as it helps lower the notional cost of debt servicing.

8. Rupee devaluation:

  • In 1966, hit by drought after two major wars (with China and Pakistan), India devalued the rupee by 36.5%.
  • Again, in 1991, a Balance of Payments crisis exacerbated by the sharp spike in oil prices in the wake of the Gulf War spurred India to devalue the rupee in “a two-step downward adjustment of 18-19%.”

Exclusionary state


  1. Akriti Bhatia, PhD Scholar, University of Delhi, emphasized that rural-to-urban migrant workers are facing dislocation and crisis of identity.

Important facts:

  1. In India inter-state migrants are facing constant threat.
  2. Large chunk of migrant labourers shelter and work are deemed “illegal” within

Indian cities.

  1. The 2011 Census pegs the total number of internal migrants in the country including those who have moved within and across States, at a staggering 139 million.
  1. The author said , it is the responsibility of state to provide migrant workers with proper documents, secure jobs, housing and provisioning of other public utilities.
  1. However, the state often derecognises them and conveniently brackets them as “illegal”.
  1. The Smart Cities Mission of 2015 proposed investment allocations to convert 99 Indian cities into smart cities.
  1. A mere 8% of the intended projects have been completed so far in the past three years, according to the recent report released by Housing and Land Rights Network.
  1. Many smart city proposals identify slums as a “threat” to the city in their “SWOT” (Strengths, Weaknesses, Opportunities, and Threats) analysis while totally failing to account for migrant labour in the schemes.
  1. The report documents forced evictions and shelter demolitions in 32 out of the 99 proposed smart cities so far.
  1. The national obsession with bringing order to international boundaries could also be applied within nation states, cities and neighbourhoods
  1. The author suggests that the state’s role in ensuring equality, basic dignity, livelihood and providing minimum social security to its people must be upheld before all other priorities.
Categories : Test 1 (5004)
Print Friendly and PDF