Life after 65: Rupee should retire now and Mr C needs a vacation

The Rupee met the Dollar for lunch yesterday. This was what we overheard…

Dollar: Hi there, Li’l Rupee. How’s life?

Rupee: Can you go easy on the “Li’l” part? I’m not in any mood for your cockiness…

Dollar: Sorry, didn’t mean to belittle you. Sorry, that slipped out unintentionally. But why are you in such a sorry state? What happened?

[caption id=“attachment_1050559” align=“alignleft” width=“380”]  Bleeding currency. Reuters[/caption]

Rupee: Well, my vital stats are just gone all wrong. And nobody loves me. The fiscal deficit is up the creek. It could be 4.9 percent this year, and could be worse if revenues don’t show up later this year…My government’s debt-to-GDP ratio is 45.7 percent, but still no one is happy.

Dollar: Really? Beauty lies in the eye of the beholder. Look at me. My own Federal government debt ratio is over 100 percent, and look how happy the currency markets are…

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Rupee: But my CAD is bad, too…My finance minister, Mr C, is having sleepless nights…It will come down to 3.7 percent, he says, but the market is still not happy.

Dollar: Lies, damned lies, and CAD numbers. My CAD is also 3.7 percent right now and nobody seems to mind…

Rupee: We have a problem. The economy is going downhill, but so is my value. If we cut rates, my worth will drop further. If we raise interest rates, growth will slow down…If I cut the fiscal deficit and the CAD, my growth will fall further, and this will worsen my budget deficit… What do I do? I am losing all self-esteem.

Dollar: You dilemma is QE or not QE. We solved all our problems by flooding the markets with money and also kept interest rates down…Just try it. QE is an elixir for all sagging currencies.

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Rupee: We merely tried cutting interest rates for one or two quarters and all hell broke loose on the currency front. People just sold me down the river and embraced you. QE doesn’t work for us.

Dollar: Why don’t you try changing your central bank governor?

Rupee: He’s going anyway, but not that it’s any help. He’s now doing all we asked him to - including raising short-term rates and pretending long-term rates won’t be impacted - but it didn’t work. The market just doesn’t believe us.

Dollar: We’re changing governors too…it should be a breeze.

Rupee: Nope. We tried everything. We banned gold coin imports and restricted purchases. We restricted external remittances. We raised duties on inessentials, including TVs. But the market is not impressed.

Dollar: Maybe your finance minister should try something more impressive: like FDI, reforms, etc.

Rupee: He’s done everything. FDI in retail is open, but not a dollar is coming in. We opened up 12 more sectors for FDI…not sign of the moolah. It’s hopeless.

Dollar: You must be doing something wrong, surely…

Rupee: I don’t know. The finance minister’s has done everything possible. He rushed to Washington to convince investors to come to India. He pushed back the implementation of tax avoidance rules. He has drawn a red line on the budget deficit and the CAD…

Dollar: Has he drawn a red line on your value, too?

Rupee: Of course not, but he has talked daily about how wrong the market is in valuing me…

Dollar: Ah, now I get it. You think my strength comes from Ben Bernanke and President Obama talking me up? You really think people are buying me because there is value in me? They just think I am the last man standing…once they start thinking otherwise, I’ll be a loser again. Tell your minister not to worry; there is no right value to any currency. It’s all driven by herd instinct. At some point, he’ll become the flavour of the season…

Rupee: Try telling that to Mr C. He can’t wait forever, he has an election coming in nine months. Every day the opposition candidate for PM, one Mr M, keeps talking about the rupee, and by boss feels compelled to do something…He can’t stand Mr M mocking him.

Dollar: Ah, now I get it. I see how difficult it is politically…

Rupee: So what do we do? How can I get my value up again and stop Mr M mocking my boss?

Dollar: Maybe you should try benchmarking yourself against cents, not dollars. You should say you are one-and-a-half times the US currency - one-and-a-half cents per rupee. It’s much better than saying its takes 64 rupees to buy a dollar…

Rupee: Thanks but no thanks. I don’t think anyone will buy that…

Dollar: I think I have a better solution.

Rupee: What, what?

Dollar: You’ll soon be turning 65, right? It’s time to retire…That’s what you should do. Retire. Ask your government to come up with a new currency where the new rupee is equal to $1.

Rupee: How do I do that? In election season, it’s suicide. I can just hear Mr M chortling…

Dollar: Tell Mr C to go on a vacation. When he retires from the business of trying to rescue you, you will be safer. From both Mr C and Mr M.