Question

Explain liberalisation Foreign exchange reforms ?

Answer 1

Dear Student

Foreign exchange reforms are on of the part of External Sector Reforms . Foreign exchange reforms were initiated in 1991 with the devaluation of the Indian rupee against foreign currencies. Devaluation implies a fall in the value of rupee vis-a-vis (say) US dollar or English pound. Implying that a US $ can be exchanged for more rupees than before. Or, implying that a US $ can buy more goods in the Indian markets. This accelerated the flow of foreign currency into the Indian economy. This is what we desperately desired to solve the foreign exchange crises.
(Devaluation implies lowering the value of our currency in relation to other currencies of the world. Consequently, a US dollar or an English pound can exchanged for more rupees than before. Implying that a US dollar or an pound can buy more goods in the Indian markets. It is expected to accelerate the flow of foreign exchange into the Indian economy.)

Followed by devaluation in 1991, the exchange value of the Indian rupee in the international money market (or foreign exchange market) was left to the free play of the market forces. Presently, exchange rate is determined by the forces of supply and demand in the international exchange market. Foreign Trade policy underwent a substantial change in the wake of liberalisation. restrictions have been considerable moderate rather withdrawn from many items of export and import.

Regards