Foreign exchange

Story hook

On 19 July 2022, a single number scrolled across every business news ticker in India for the first time in history: ₹80.00 per US dollar. The rupee had crossed a number that, just five years earlier, was unthinkable. Yet inside the Foreign Exchange Department at RBI's Mumbai office, no alarm sounded. The team had been selling dollars at a pre-defined cadence for six months — burning through $110 billion of reserves to prevent a disorderly move, while permitting an orderly depreciation. The rupee touched ₹83.5 by mid-2023, ₹84 by late 2024, and the RBI repeated, calmly, its mantra: "We do not target a level. We target volatility."

This is the riddle of India's exchange-rate policy — a managed float that is officially neither pegged nor freely floating; a currency that has depreciated 75% against the dollar since 1991 but has gained against most of its trading partners on real terms; a regime where the Federal Reserve's policy in Washington moves the rupee more than RBI's policy in Mumbai. Understanding NEER, REER, intervention mechanics, and the impossible trinity is understanding why your rupee is worth what it is.

Why this matters for UPSC

Exchange-rate questions appear in almost every Prelims paper — typically on NEER vs REER, types of exchange rate regimes, appreciation vs depreciation, currency wars. Mains questions recur on rupee internationalisation, RBI intervention strategy, and the trilemma. Interview boards routinely test why a falling rupee can be both bad (imports cost more) and good (exports become cheaper) at the same time.