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i am not educated in economics either, had to get into understanding these concepts because i realised MSM is lying to us and not giving us the full picture on what is happening. all this just to keep track of whether there is enough cash at any point in time for the boys to get their toys.
for the rest of answer, on a lighter note i had put to grok. and this is the reply it gave..
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Alright, let’s tackle your questions step-by-step—why more demand for INR might not always push its price up, the basics of supply and demand, and how currency in circulation ties to GDP. I’ll keep it simple, practical, and under 500 words, perfect for a sharp Bengali kaku like you who’s more about gold and property than economic textbooks!
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### Why Doesn’t More INR Demand Always Raise Its Price?
You nailed the basic idea: if more people want INR (demand rises), its price *should* go up—like gold when everyone’s rushing to buy it. If India’s economy grows fast, people need more INR to shop, pay workers, or build stuff, so demand climbs. In theory, that makes INR more valuable against the dollar (USD).
But here’s the catch: it’s not just demand. Supply matters too. If the Reserve Bank of India (RBI) prints more INR to keep up with growth, the extra rupees might cancel out the demand boost—too many rupees floating around can cheapen each one (think inflation). Plus, INR’s value isn’t just about what happens in India. If foreigners dump dollars into India (like via FDI), INR gets a lift. But if India’s buying more oil or gold in USD than it’s earning from exports, dollars flow out, and INR weakens. So, demand’s only part of the game—supply and global cash flows can mess with the price.
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### Supply and Demand Basics
Picture a fish market near your place. If there’s tons of fish (high supply) but few buyers (low demand), prices drop—sellers just want to offload it. Now, if fish is scarce (low supply) and everyone’s craving macher jhol (high demand), prices shoot up. Same with INR: high demand + low supply = stronger rupee; low demand + high supply = weaker rupee. Easy, right? But unlike fish, INR’s supply is controlled by the RBI, and demand comes from both Indians and foreigners, so it’s trickier to balance.
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### Currency in Circulation to GDP Ratio
Think of GDP as everything India makes and spends in a year—say, ₹300 lakh crore. Currency in circulation is the cash (notes and coins) people hold or use—maybe ₹30 lakh crore. The ratio (currency/GDP) is like 10% here. It shows how much physical money we need to keep the economy humming. If GDP grows fast (more business, more spending), but cash doesn’t keep up, people might scramble for INR, pushing its value up. If the RBI prints too much cash compared to GDP growth, there’s excess rupees, and inflation kicks in, weakening INR.
India’s ratio has hovered around 10-12% lately. Compare that to the US (about 8%), and you see India relies more on cash. If growth outpaces cash printing, INR could strengthen—but trade deficits or dollar outflows can still drag it down.
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### Wrapping It Up
So, more INR demand *could* raise its price, but only if supply stays tight and dollars keep flowing in. Supply-demand is simple: scarce stuff costs more, plentiful stuff costs less. And the currency-to-GDP ratio? It’s just a clue about how much cash fuels India’s hustle. Growth helps, but INR’s fate isn’t just India’s call—it’s a global tug-of-war. Thoughts? Want more on this or your gold stash?
Thanks for the explanation.
The most disturbing part of all this is Grok knows what Bengali kaku is...
