How Indian Rupee works

Indian Rupee, one of the oldest currencies of the world is becoming an important currency in global marketplace. Lets have an oversight "how Indian rupee works". Who controls printing banknotes, who distributes it, how it reaches to common masses , how it is compared to other currencies of the world. We will try and find answer to these questions.

First thing first : History

Derived from Sanskrit word 'Raupya' which means silver coin was first introduced around 290BC by Chanakya. He is the first person to write a book on economics. Indian Rupee was earlier silver based entirely and this became the reason of "The fall of he Rupee" and the reason lies in 19th century. Firstly there was scarcity of silver throughout the world and developed economies began shifting their currency to gold standard. But Indian Rupee remained silver based and then history took a turn and large reserves of silver were discovered in United States and this was the time where value of Indian Rupee started to fall. After independence in 1959 Indian Rupee took over all currencies popular in the country and in 1957 rupee was divided in 100 units and were called 'Naye Paise' at that time. In 1947  1 US Dollar was equivalent to 3.30 INR and in 2013 it was 68.80 INR. The official symbol of INR '' was officially adopted in 2010.

Printing and Minting

Reserve Bank of India regulates Indian Rupee and has the sole right of printing banknotes. But Indian Government mints all the coins and has 4 minting facilities throughout India. In 1996 RBI introduced Mahatma Gandhi Series of banknotes and since then each legal banknote has potrait of Mahatma Gandhi. In 2012 RBI incorporated the new rupee symbol '' on all banknotes and coins. This symbol was designed by Uday at IIT Bombay. Interestingly an NGO in India prints 'Zero Rupee' note as form of protest and currently RBI issues 5, 10, 20, 50, 100, 500 and 1000 banknotes.

If you have seen a banknote  issued by RBI you will see a line written 'I promise to pay the bearer an amount of X ' .This means the bank is liable to pay the value of banknote to the bearer in exchange of coins of equivalent amount.



 

RBI decided to print polymer notes in 2009 and these banknotes will have more security features and 4 times longer life than paper based banknotes.

Security Features 

RBI has recently started a new website for increasing awareness about security features of banknotes which can be accessed from [su_permalink]www.paisaboltahai.rbi.org.in[/su_permalink].

Convertibility 

Indian rupee's exchange rates are mainly market based but RBI uses INR to US Dollar as de facto controlled exchange rate. But all depends on current policies and governor of RBI at that time because INR cannot be bound to one foreign currency otherwise it will increase volatility of Indian Rupee. RBI's job is not to decide the direction of Indian Rupee but to reduce it's volatility. RBI is managing this currency very well so far and their efforts are commendable. For viewing current exchange rates at any time please visit [su_permalink id="2" target="blank"]http://finance.yahoo.com/currency-converter/[/su_permalink]

So this was the brief introduction regarding Indian Rupee and valuable comments from readers are welcome.

Thank You

What is SENSEX and how it relates to Indian economy?

Sensex is most effective tool to understand current Indian economy. We often hear Sensex ‘dropped’ or Sensex ‘is rising’. But exactly what is Sensex and how it affects on indian economy? and how do we interpret meaning of its value published in the news or how it is calculated?

Let’s try to find out about sensex. Actually Sensex is short form of “S&P Bombay Stock Exchange Sensitive Index”. S&P is a US based company which provides financial data all over the world. We all know that Bombay Stock Exchange or BSE is a place in Dalal Street, Mumbai where all companies sell their shares which are bought by investors.

How Sensex is calculated?

When a company performs better, earns more profit and produces more goods and services, its market value of shares rises eventually. Some shares are kept reserved by company itself which is normally more than 50%. Now all the remaining shares are traded in stock exchanges like BSE. Sensex estimates total value of these shares on current market value basis. So Sensex is a measurement of total outstanding shares based on their current market value.

How Sensex affects Indian economy?

But how Sensex relates to Indian Economy? BSE have selected 30 companies in India as representative of various industries on the basis of their value and how actively their stocks are traded. Some of those companies are BHEL, TCS, SBI, HDFC, Tata Motors, Sun Pharma, Hero Motocorp and L&T etc. These companies are leaders in their sectors. So Sensex shows free float market capitalization value of these 30 companies.

But since value of Indian rupee keeps changing throughout the day we have to decide some base value. So BSE took base value of ‘free-float market-weighted stock market index’ of 30 companies as 100 on 1 April 1979 taking base year as 1978-79. It was first published on 1 January 1986 and crossed 1000 mark on 25 July 1990. So next time you see value of Sensex you will know it is indicating market value of publicly traded shares of 30 leading companies on the base year 1978-79.

If Sensex rises then the market value of shares of leading companies is increasing. That means these companies are performing better. And if all sectors of industries are performing better it means we are becoming more productive. And wealth & prosperity follows.

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