Wednesday, March 14, 2012

Money Supply Vs Unemployment

Quite often we are so anxious about the increasing money supply in an economy, but sometimes, it is a necessity for the economy to rationally circulate more money. There were times when the US economy underwent through tough times of $ crisis, which has caused

Tuesday, March 13, 2012

The Crisis that Never Occured

Everyday we are bothered by so many articles in different print medias and also the similar news BBS comes about, with regard to the Rupee crisis in Bhutan. Hardly, such situation occurs in any country. It is solely the effect of our dependence on Indian economy alone. Today approximately 700,000 Bhutanese consume Indian goods, there will be 100,000 more, if the population projected by the NSB comes true. We are living under the mercy of Indian government and we will have to, if our government doesn't come up with better long-term measures to solve this problem.This should warn the policy makers and planners the situations Bhutan would face in future if we do not open our economy beyond India. Rupee has become so indispensable in Bhutan that sometime we can afford to keep our Ngultrum silent.

I would say, the prime causes of Rupee crunch in our economy are- almost 95% of goods in our market are produced in India, Trade deficit with India, the education expenses of our fellow Bhutanese students studying in India, unmonitored housing & vehicle loans by the banks and an acceptance of Indian Rupee as a legal tender in our economy.  

Our government is coming up with measures like reducing the Rupee Reserve Ratio the banks need to hold, borrow Rupee from State Bank of India, introduce so called austerity measures, encouraging local banks to reduce lending, and and so forth to curve Rupee crisis, but they do not realize that acceptance of Rupee as a legal tender in Bhutan is always a cause of Rupee shortage. These measures are also just temporary measures and could be greater threat owing to the risk these measures expose our economy to inflation. Inflation is a development phenomenon, and is good if it is kept at low rate. If Bhutan is borrowing Rupee from Indian Banks, the Rupee supply would increase, meaning this would reduce the value of our currency. If this situation occurs in export oriented economies, they would make billions out of it, because their products win the competition in the trading market. The fact that Bhutan's product for export is limited, we would be the victim of this situation. Also, borrowing would aggravate our indebtedness to Indian government.    

To avoid such situations and also to reduce the need of Rupee, our government should change the investment pattern. Major portion of the GDP should be appropriated to Agriculture sector. This would be a measure to meet domestic demand for cereals and diary products. This would at least reduce the import of cereals and agricultural products.  So as to save at least few million Rupees if not make more. Domestic demand for agriculture goods should be met by our domestic produces.

Bhutan must do away with trading in INR within Bhutan. It should be exclusively used as a medium of exchange with India, not in Bhutan. Ngultrum must not be substituted with INR in its own territory. This means that, INR is only used for trading purposes with India. Though our BTN is at par with INR, the purchasing power of BTN has gone weaker especially in the Border towns. This is the sign of excess supply of BTN or excess demand for INR.

 MoF together with RMA should loosen the monitory policy and monitor the trade with the foreign countries, in order to keep away such crisis in future and also to stabilize our economy. It is a wonderful opportunity for MoF & RMA to prove themselves. But this crisis (Rupee crunch) needs immediate attention from MoF & RMA.

By the way, Indian government has also reduced the Cash Reserve Ratio to fight Rupee crunch recently.

Lets pray our concerned authority take immediate and wise measures to fight this crisis.