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The Japanese currency is lower than Indian currency
Japan is a nation where technology is far greater than India’s technology; their Space research program by their Space exploration Agency JAXA is achieving Milestones still we see their currency is lower than India’s currency ( 1 Rs = 1.52 YEN ) that India’s Currency is 68.9% cheaper than Japan. Why? Does this mean India’s economy is far greater than Japan’s?
First of all, we need to understand that a nation’s economy doesn’t depend upon its currency exchange rate depends upon its GDP.
What is the Currency Exchange rate?
An exchange rate is the value of one nation’s currency versus the currency of another country or economic zone. For example, how many U.S. dollars does it take to buy one euro?
Types of Exchange Rate:
1.) Free Floating
A free-floating exchange rate rises and falls due to changes in the foreign exchange market.
2.) Restricted Currencies
Some countries have restricted currencies, limiting their exchange to within the countries’ borders. Also, a restricted currency can have its value set by the government.
3.) Currency Peg
Sometimes, a country will peg its currency to that of another nation. For instance, the Hong Kong dollar is pegged to the U.S. dollar in a range of 7.75 to 7.85. This means the value of the Hong Kong dollar to the U.S. dollar will remain within this range.
What Is Per Capita GDP?
Per capita gross domestic product (GDP) is a metric that breaks down a country’s economic output per person and is calculated by dividing a country’s GDP by its population.
In simple terms.
GDP per capita income = GDP of Nation /Total population of nation
The Japanese economy is far greater than India’s economy because the Japanese Import-export or trade deficit is more than India’s export. This is because Japan relies more upon its technology rather than other countries. Also, we need to understand Japan is the only country that doesn’t buy or trade anything from the USA and NATO countries after Hiroshima and Nagasaki. Their nation’s economy is growing with their Technology and GDP. But with more export, more export taxes and lower will pay the price of export, and higher will be the import price.
To avoid that, many countries, big nations like China, South Korea, and Japan do one thing known as “DEVALUATION OF THE CURRENCY” to make exports cheaper and make their products more competitive in the global market. So if exports become cheap and imports become expensive, this is the trade deficit.
What Is Devaluation?
Devaluation is the deliberate downward adjustment of the value of a country’s money relative to another currency, group of currencies, or currency standard. Countries that have a fixed exchange rate or semi-fixed exchange rate use this monetary policy tool. It is often confused with depreciation and is the opposite of revaluation, referring to the readjustment of a currency’s exchange rate.
One reason a country may devalue its currency is to combat a trade imbalance. Devaluation reduces the cost of a country’s exports, rendering them more competitive in the global market, increasing the cost of imports. If imports are more expensive, domestic consumers are less likely to purchase them, further strengthening domestic businesses. In addition, because exports increase and imports decrease, there is typically a better balance of payments because the trade deficit shrinks. In short, a country that devalues its currency can reduce its deficit because there is greater demand for cheaper exports.
But this makes one problem sanction from other nation and nation Might get into debt trap so to avoid that they bring investors like India; also japan invests more in low interest like In India by building projects dams, roads, etc.
On August 5, 2019, the People’s Bank of China set the yuan’s daily reference rate below 7 per dollar for the first time in over a decade. This, in response to new tariffs of 10% on $300 billion worth of Chinese imports imposed by the Trump administration, was set to go into effect on September 1, 2019. Global markets sold off on the move, including in the United States.
The Trump administration responded by labelling China as a currency manipulator. This was just the latest salvo in the U.S.-China trade war, but indeed not the first time China had devalued its currency.
The Downside to Devaluation
While devaluing a currency may be an attractive option, it can have negative consequences. Increasing the price of imports protects domestic industries, but they may become less efficient without the pressure of competition.
Higher exports relative to imports can also increase aggregate demand, leading to higher GDP and inflation. Inflation can occur because imports become more expensive. Aggregate demand causes demand-pull inflation, and manufacturers may have less incentive to cut costs because exports are cheaper, increasing the cost of products and services over time.
Although on paper Japan, Yen is lower than India’s Rupee Still, it doesn’t mean Indian’s can travel to japan and live cheaper. Japan’s economy is far more than India’s in terms of Per capita GDP or even in times of Per capita GDP PPP.
Moreover, the lifestyle of Japan is better than India’s. So rather than focusing on improving the Currency exchange rate in the international market, we India’s need to Improve Purchasing power of the ordinary person. This will eventually improve India’s GDP and economy.
This can be done by putting more effort into improving the infrastructure, education defence, and Manufacture sector of India. Also, enhancing tourism as this sector is almost untouched and India’s vast culture and Demographic region can lead to high tourism.
The Indian Economy (Economic Survey 2020-21 & Budget 2021-22 included)
This book explains the subject in such a manner that even a student with or little exposure to the subject will understand it well. The book covers the fundamentals of micro and Macroeconomics in adequate detail.