In the global economic scenario, the US dollar is considered as the reserve currency, so all other currencies are valued in comparison with the US dollar. Therefore, an increase or decrease in the value of the dollar directly or indirectly affects the economy of other countries in the long run.
So, how does this fluctuation in the value of dollar affect an individual’s savings in India?
When fewer Indian rupees can buy one dollar, the value of the dollar decreases, making it weak. Thus, India’s imports will become cheaper. As a result, the country would be able to import more foreign goods, which would in turn reduce inflation as supply would increase. Reduced inflation means more purchasing power in the hands of the individual. More purchasing power will induce people to save more and reduce the cost of living thereby improving the standard of living.
Conversely, when more Indian rupees are required to buy one dollar, the value of the dollar increases, making it strong. Thus, exports for our country become cheaper. However, when the dollar becomes strong, US companies would prefer manufacturing their own goods for their use rather than import from other nations as they would have to pay more dollars. Hence, exports will reduce from our country and may lead to a supply glut in India. As a result, industries may start producing less and there may be a decline in the economic growth.
Also, if manufacturing costs are higher in a country or they cannot domestically undertake production etc., jobs are outsourced to other countries to complete tasks and meet demands. Through outsourcing, one can make use of a comparative advantage through which jobs can be completed at a lower cost in foreign nations. This again increases the GDP of the countries to whom jobs have been outsourced, and thereby their income. Therefore, more income will lead to more savings and the cycle continues.
This relation clearly states that global economies are at some stage interrelated. If anything goes wrong in any developed economy, it would have a direct impact on other developed and developing economies with whom it trades. A demand-supply mismatch can occur if imports and/or exports reduce from any major economy. Our current global economic condition is evidence to this fact as a fragile US economy and a debt-struck Europe have rattled world markets. This condition has also directly impacted the savings and incomes of individuals.