For a stable currency turn (not too far) east

Tuesday, April 12, 2005

Almost all currency talk these days revolves around the three ugly ducklings, the US$ (deficits), the Euro (stagflation) and the Yen (worsening economic outlook). Of course, with 75 percent of all savings in the world denominated in US$, the greenback deserves all the media coverage it gets. A lot of ink gets also dry on the issue of the revaluation of the Chinese Yuan.
Bud did you ever read about the currency of a major nation that excels in high GDP growth while managing to lower inflation at the same time? A country that is building up its foreign exchange reserves relatively faster than China and improving its trade account, all built on private enterprise with only 12 percent of GDP coming from government spending.
"Bharat", as it is called locally, won't mean much to the most of us, but India does. The biggest democracy in the world has - almost unnoticed by the rest of the world - undergone the most dramatic change of all developing nations.

The south Indian town Bangalore has replaced Silicon valley as the place where the majority of revolutionary computer based science is taking place. Bombay, now called Mumbai again, rivals London in the density of mobile phone users per square mile. Mittai Steel last year became the largest privately owned steel conglomerate in the world. And with an upwardly mobile middle class numbering hundreds of millions the future looks at least as promising as that of China.
Indicators confirm this picture of a flourishing economy awash in money and on a sustainable path of growth. Foreign currency reserves grew an astonishing 30 percent to 127 billion US$ in the 12 months to February 2005. And this excludes the huge mountain of gold hoarded by the 1.2 billion Indians. GDP growth slowed to a healthy 6.6 percent from 8.1 percent in 2003. Industrial production nevertheless rose 8 percent but consumers didn't have to feel the heat: consumer prices rose a modest 4.2 percent after 3.8 percent in the preceding period. Despite record purchases of durable goods Indians know there is no lasting prosperity without adequate savings. They are prepared for any inflationary onslaught coming along with a possible overheating of the economy: Indias bullion gold imports rose from 200 to 600 tons in the last four years, making the country the number one gold buyer in the world.
They might not drive airconditioned SUV's, but in terms of gold - the only form of money surviving 6000 years of money's history without any longer term devaluation - they are a lot richer than the citizens of the US, who are only sitting on mountains of paper.
The foreign exchange markets have already paid their respect by revaluating the Indian Rupee by roughly 10 percent against the $ in the last 24 months. Namaste!

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