The Indian rupee is the official currency of the Republic of India. Its ISO code is INR, and its symbol is (₹).
The rupee is issued by the Reserve Bank of India, and its value is subdivided in 100 paise (paisa in singular).
The rupee is one of the oldest currencies on the planet. Its origin traces back to the 6th century BC, although its current name was adopted in the 16th century.
The word rupee comes from “rupiah” which means silver coin in Sanskrit.
The Indian rupee is considered a free-floating currency. However, the Reserve Bank of India manipulates its exchange rate using regular open market operations.
The bank buys and sells rupees in the FX market to limit the volatility of the exchange rate. So in reality, the rupee is a controlled currency or a “managed floating currency”.
Furthermore, customs regulations establish limits to the import and export of rupees. Foreigners are banned from importing and exporting rupees, while Indian nationals are allowed to import and export a maximum of INR 7,500 at a time. In Nepal, the possession of INR 500 and 1,000 rupee notes are forbidden.
In addition to these restrictions, the Reserve Bank of India exerts a series of currency controls. On the capital account, foreign institutional investors must abide by a set of limits on their investments in India. In the current account, however, there are no restrictions on currency conversion.
History of the Rupee
Until World War I the rupee remained pegged to the British pound and at parity level with the U.S. dollar.
The British pound was on the gold standard, and when the gold-silver ratio expanded, the colonial government’s expenses to pay their debts to England demanded larger and larger remittances of the rupee, which led to an increase of the taxes and rising dangers of social unrest.
In 1960, after a period of increasing trade deficits in India, the RBI devalued the rupee. At that moment, the value of the rupee started a continuous decline.
In 1969, one rupee was traded for 13 pence. In 1979, 6 pence, and in 1989, it was at 3 pence per rupee.
In 1991, with the rupee still pegged to a basket of currencies consisting of its principal trading partners, an economic crisis set the country on the verge of default.
In 1996, India suffered high inflation and budget deficits that forced the government to devalue the rupee again.
During the first decade of the 21st century, the rupee experienced a period of stabilization at an exchange rate between 44 to 48 rupees per dollar.
Then the Great Financial Cris hit and foreign investors withdrew large sums of cash from emerging markets.
The Indian government was forced to implement currency controls to stem further depreciation of the rupee.