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Turkey eating up India's forex reserves, but shooting up bitcoin
August 14, 2018, 5:37 pm

On Tuesday, for the first time in history, rupee breached the key 70-mark against US dollar in intra-day trade to hit the all-time low of 70.10, as concerns about Turkey’s economic woes persisted.  The currency, however, closed at 69.90, up 3 paise against Monday's 69.93. 

The Turkish currency, lira, is in a free fall, having fallen 50 percent against the dollar in a year. It fell sharply in the last couple of days after the US hiked import tariffs on Turkish steel and aluminium.  Investors see this as bad news for global trade and are dumping the Turkish lira, as well as other emerging market currencies, and going for the safety of US dollar-backed assets. 

The increase in demand for the US dollar is making it stronger against most currencies, including major ones like the euro and pound. 

On Monday, the pound sterling was trading near 2018 lows, the euro declined to a 13-month low, the Russian ruble lost 2 percent, while South African rand plunged 7 percent in the global meltdown. 

How is India placed?

As the dollar becomes stronger, the rupee turns weaker. Rupee 's weakness is also driven by the fact that India is a net importer, and thus needs more dollars every year to import. Foreign investments have also slowed down translating in fewer dollars coming in. 

Foreign investors ended up selling shares worth Rs 971.86 crore on Monday, NSE data showed. Since the beginning of this year, foreign investments in shares have seen a dip worth Rs 35,356 crore (including equity, debt and hybrid). 

Moreover, India's gold imports rose for the first time in seven months in July, thus further worsening the trade deficit and weakening the rupee. 

India's central bank, the Reserve Bank of India (RBI) intervenes in the market from time to time by selling dollars to prevent the currency from slipping too much. This has resulted in a significant drag in foreign reserves which have declined from a record high of $426 billion in April to $403 billion in early August. 

However, it is believed that India can still take in another 5-8 percent fall in forex reserves without having to worry.

The free fall of lira may have strained other currencies, but it has come as a blessing to cryptocurrency, bitcoin. Turkish cryptocurrency exchanges noted a surge in trading as investors looked to hedge their losses on lira by buying bitcoins. Bitcoin has reversed its fall to rise 1.6 percent on Monday.
But, with the RBI's deadline to banks to stop any relationship with cryptocurrency exchanges expiring last week, Indians can no longer monetise their crypto trading. They are now restricted to peer-to-peer (P2P) trading, which involves trading one type of cryptocurrency for another.
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