Home » What Caused the 1991 Currency Crisis in India? by Valerie Cerra
What Caused the 1991 Currency Crisis in India? Valerie Cerra

What Caused the 1991 Currency Crisis in India?

Valerie Cerra

Published October 1st 2000
ISBN : 9781282109926
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56 pages
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 About the Book 

In mid-1991, Indias exchange rate was subjected to a severe adjustment. This event began with a slide in the value of the rupee leading up to mid-1991. The authorities at the Reserve Bank of India took partial action, defending the currency byMoreIn mid-1991, Indias exchange rate was subjected to a severe adjustment. This event began with a slide in the value of the rupee leading up to mid-1991. The authorities at the Reserve Bank of India took partial action, defending the currency by expending international reserves and slowing the decline in value. However, in mid-1991, with foreign reserves nearly depleted, the Indian government permitted a sharp depreciation that took place in two steps within three days (July 1 and July 3, 1991) against major foreign currencies: for example, 9 percent and then another 23 percent against the U.S. dollar. With assistance from the IMF and after an initial stage of stabilization through administrative controls, the government embarked on an adjustment program featuring macroeconomic stabilization and structural reforms. Structural measures initially emphasized accelerating the process of industrial and import delicensing and then shifted to further trade liberalization, financial sector reform, and tax reform. However, despite progress in liberalizing trade and capital flows, India is still relatively closed and capital inflows have been well below those in other Asian economies. In this respect, Indias 1991 currency crisis provides an interesting case study, contrasting against the recent Asian crisis, which mostly affected the very open Asian countries.