From fixed to flexible exchange rates: the case of india

Bhattacharyya, Ranajoy (2004): From fixed to flexible exchange rates: the case of india.

Abstract

The Indian Government changed its exchange rate regime quite a number of times in the first half of the 1990s. From a more or less a fixed exchange rate regime upto early 1992 the exchange rate was fully convertible in the current account by 1995. Between 1990 and 1995 there was a period when the exchange rate was operating under the liberalised exchange rate management system, a period when the rupee was fully convertible in the trade account but not the current account and a period when there was full convertibility in the current account. This paper takes a simple empirical look at the nominal exchange rate during the period of economic liberalization. The objective of this paper is to analize whether there were clear structural breaks at the level in the periods when the regimes changed. This paper suggests that neither the introduction of LERMS nor the introduction of full convertibility in the current account had any significant effect on the exchange rate. The exchange rate was on the other hand fully adjusted by the policies taken before them. The two policies crucial in this regard were the devaluation of July, 1991 and the trade account convertibility of February, 1993. Once these policies were undertaken the actual policy announcements were simply formal in nature.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange rate; Liberalization; India
• Subjects: F - International Economics > F3 - International Finance > F31 - Foreign Exchange

References

Kohli, Renu (2000) “Real Exchange Rate Stabilization and Managed Floating: Exchange Rate Policy in India, 1993-99”, Working Paper No. 59, Indian Council For Research on International Economic Relations, New Delhi.

Siddiki, Jalal U. (2002) “Black market exchange rates in India: an empirical analysis”, . School of Economics, Kingston University, Penrhyn Road, Kingston, Surrey KT1 2EE, UK (mimeo).